HI Kevin, I provide free loan modifications for distressed home buyers and I've found that while the banks will work with you to lower the payments by reducing the interest rate and such, they will rarily cut your principle balance. It's sad they would rather see your home go into foreclosure but that' s the nasty truth and that's what they do. If you are under water, please feel free to call or email me..I'd be happy to discuss your options with you. Good luck and God bless!

Kamal Randhawa
Broker
510-932-1066

I've never seen a lender reduce the principal. That's not to say they don't or won't, but it's very, very rare.

Unfortunately, there is alot of mis information out there about principle reductions. Most lenders shy away from principle reductions and are more likely to do a loan modification with an interest rate reduction to lower payment rather than a principle reduction. From what I have seen, a principle reduction is more likely from a second lien lender than a first lender as the second lien will likely be wiped out in a foreclosure sale.

All you can do is try for a modification to see if you qualify but rememer your ultimate goal should be to save your home. What if the lender is willing to lower your payment enough so that you can afford it but are not willing to lower the principle... would that be enough to keep you in your home or are you only willing to stay in your home if the principle is reduced?

If your income doesn't support, then they may try to ask you to short sell it. Short selling process isn't too difficult if the banks are cooperating (each bank is different).

If you're income is barely making the payments, then they may be open to modifying your loan under HAMP (google it). These days, the banks have incentives from the federal government to help homeowners stay in their homes.

If your question is will a bank allow a modification with a principle reduction or more willing to take a loss by sell the foreclosed property (REO). Banks are more willing to sell a property at a loss as a REO. When the property is on the market, there is a better justification for the loss compared to making a decision to reduce the principle in a modification.

Lots of time the investor on the underlining note for the mortgage does not allow a principle reduction because they do not want to pass the loss to the investor. In addition, the makinghomesaffordable plan does not allow for a principle reduction, thus most lenders following this plan are not offering principle reductions on modifications.



Keith Manson
First Weber Group
Certified Distressed Property Expert