Troubled Homeowners May Get a Break on Mortgage Principals

NEW YORK (MainStreet) – Freddie Mac is hinting that government-sponsored home mortgages may soon offer for a big “out” for troubled homeowners – reduced principal on their mortgages. Is it too good to be true? Maybe not.

There’s no debating the fact that mortgage foreclosures, after a brief respite, are creeping upward again.

According to RealtyTrac, foreclosures could rise by 25% in 2012 as banks and mortgage lenders clamp down on delinquent homeowners now that the “robo-signing” scandal is in the rearview mirror.

Last year saw a reduction in foreclosures as lenders haggled with state attorneys general in court over the validity of mortgage documents filed by mortgage servicers.

That issue has largely been resolved after a $25 billion agreement between lenders and state attorneys general, with the bulk of the money going to help homeowners who have either been foreclosed upon or who are delinquent in their mortgages.

That’s why there were only 1.89 million properties foreclosed upon in 2011, down 34% from 2010 – banks and lenders had to get their legal ducks in a row before clamping down on delinquent homeowners.

Now that’s starting to happen again. RealtyTrac reports that mortgage lenders are starting to “push through” some of the delayed foreclosures.

With more foreclosures on the way, Freddie Mac may be gearing up to help struggling homeowners out with a new principal reduction program. The U.S Treasury Department recently said it would triple incentive programs for mortgage investors to green-light mortgage principal reductions in home loan modifications.

Essentially, the deal would give investors up to 63 cents (up from between 6 cents and 18 cents originally) for each $1 forgiven under the government’s Home Loan Affordability Program (HAMP).