Salt Lake City, UT (PRWEB) September 17, 2012
In the news lately, banks have been talking about principal reductions as a way to keep homeowners in their homes and avoid the foreclosure auction. A large number of homeowners are underwater or upside down meaning they owe more than what their home is worth.
"We hear it all the time", says Ryan Patrick, COO of Foreclosure University. "Homeowners telling us that they are so far upside down it would be better to foreclose." Homeowners debate whether or not to just let their homes go to foreclosure and start over. This is referred to as strategic defaulting and has become a more common occurrence.
But is this the best thing to do? According to Ryan, he says that a better option for those upside down with 2nd mortgages is to ask for a principal reduction. He also refers to them as note settlements. A note settlement is where the borrower pays off the loan at a lower price, usually 10% to 30% of it's value.
"This is a great strategy because it's keeps homeowners in their homes, wipes out a ton of their debt (principal reduction), keeps their credit in good standing, lowers their payments, creates equity in the home and gives the homeowners more options now that they didn't have before. It's a win win win for everyone," says Ryan.
It's hard to understand why a bank would be willing to settle a note for a fraction of what is owed, but Ryan says it happens all the time between banks. They bundle loans together and sell them off for a fraction of what they are worth. It's also a factor of the time value of money. The dollar today is worth more than the dollar 20 or 30 years from now.
Not only can homeowners do this themselves, they don't even need to be delinquent or behind on payments in order for a note to be settled. Unfortunately, principal reductions on 1st mortgages are extremely difficult and not very successful. So for homeowners with 2nd mortgages, it's time to get back what was lost and settle those notes for good.
To find out more about note settlement and principal reductions click here.