I have heard a lot of people ask about Principal Reduction Programs. I have not seen any, but I have heard many talk about them. The truth is had the Principal Reduction Programs been rolled out in early 2009 I believe we could have stopped the huge declines in value. I read last week that banks have lost more money through this financial melt down than it would have cost them to reduce all mortgages to today’s value. Most people would say why, why reward the activities that helped spur this financial meltdown?

I agree. I hate rewarding poor or irresponsible behavior. Then of course the banks and financial companies were the driver, they made the worst decisions and acted in the poorest way and they were bailed out. We could debate the pros and cons of this whole program forever. But in a nut shell, if banks would have written down loans 1.5 to 2 years ago the reality is property values would have probably stopped declining and this mess would have been half as bad. So what does that mean to the regular person. Either way the banks still lost the money, oh, but with the write downs they would have stopped the losses where we are and the economy would be getting better. I think the biggest point I look at is the person that is still in their home, one that never had an issue. Today their home would be worth, for example $200,000 in stead of $125,000.

This point could be argued in every direction. I am a person in the trenches and this is my opinion.

Hey, banks, want to stop the fall in values. Follow Wachovia’s lead and approve Short Sales in 3 to 14 days. That would stop the fall over night. Here in Arizona, Supply and Demand and in sync. Earlier this year it should have been a Seller’s market as inventory dropped to a 3 month supply. However, most homes on the market are Short Sales. The only way to attract a buyer to wait 3 to 6 months, or even never get an answer, is to give them an incentive. THAT INCENTIVE IS A LOWER PURCHASE PRICE.  When nearly half of your Available and Pending homes for sale must be INCENTIVISED,  then the rules of Supply vs. Demand get thrown out the window and values DROP. This hurts consumer confidence. Which then drives prices even lower!

Oh, s…, I was writing about principal reductions????? Tangent, Tangent, Tangent…Beware Will Robinson you are off on a Tangent!

Yes, they are trying Principal Reductions on a minor scale for a limited amount of people. Let’s see what happens! You can read about them below.

Bank of America’s Principal Reduction Program Is Underway

06/02/2010 By: Carrie Bay

Bank of America said Wednesday that its new mortgage program for certain underwater borrowers, which incorporates an earned principal forgiveness approach into the loan modification equation, has been implemented on schedule.

The North Carolina-based bank has already mailed out an initial round of letters notifying customers who may qualify. Upon review of these applications, the first trial offers for BofA’s principal forgiveness program could find their way to distressed borrowers as early as the second half of June.

“Our tests have shown that many homeowners who are severely underwater on their mortgages will respond positively to a modification offer that includes reduction of their principal balance,” said Jack Schakett, credit loss mitigation executive for Bank of America Home Loans. “Encouraging more borrowers in this situation to accept a homeownership retention solution may help stabilize the surrounding community to the benefit of neighboring homeowners.”

Bank of America says the principal reduction plan, which was originally announced in late March, is being offered to homeowners who owe “considerably more” on their loan than the current value of their home, when the loan is being considered for restructuring through the government’s Home Affordable Modification Program (HAMP).

For qualifying borrowers, the bank will employ a principal reduction as the first step toward reaching HAMP’s affordable payment target of 31 percent of household