A recent Wall Street Journal article discusses the ongoing conflict regarding principle reduction for mortgage loans. As the article stresses, Fannie Mae/Freddie Mac—
two of the largest holders of mortgage loans in the United States—
usually do not permit principle reductions of loans (where the lender forgoes a portion of the unpaid debt). Most loan modification programs, both government based and private, generally do not allow for a principle reduction; while the lender will "forbear" the unpaid debt (usually in a balloon payment at the end of the loan), the debt does not go away. This reality is something I stress to each of my clients: while I always aim for a loan modification with principle reduction, it is never a guarantee.
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Labels: HAMP, loan modification