Principal Reduction Better Than Short Sales, Report Says


Here comes another black eye for the Fed's much-maligned mortgage modification program. Housingwire reporter Jon Prior has crunched the numbers and found that the Home Affordable Modification Program (HAMP) is most effective when it actually reduces the principal owed on upside-down mortgages, not just extending borrowers' repayment plans.

On the one hand, it shows that HAMP's initial strategy of helping underwater homeowners through short sales (HAFA) or deeds-in-lieu is not working as well as planned. On the other hand, it gives credence to the argument that the only way to help American homeowners out of debt is to trim some off the top.

On average, Housingwire reports, the principal reduction process helped struggling homeowners go from being 58 percent underwater (that is, the amount in which the debt exceeds the home's value), down to just 15 percent underwater. In real dollars and cents, the data so far shows an average $65,000 principal reduction on initial modifications.

Read the full story on HousingWire.