How you can reduce your mortgage
A reader, whose mortgage is “under water,” i.e. bigger than his home is worth, e-mailed recently asking about how to get his principal reduced.
The Obama administration has been encouraging lenders to reduce the mortgage principal for borrowers who have mortgage amounts greater than 115 percent of the home’s value. The writedown would occur over three years.
Another effort by the administration encourages lenders to write down underwater mortgages at least 10 percent in exchange for taking the loan off the lenders’ hands.
If the lender agrees to the writedown, the borrower would then be able to refinance into a Federal Housing Administration (FHA)-backed loan with better terms. The idea is that lenders would be willing to take a modest loss in return for unloading a risky loan to the FHA.
The administration is also encouraging lenders to agree to short sales of properties that have dropped in value.
The reader wanted to know how to go about getting his principal reduced. The answer: Contact your lender.
Borrowers have to work with their lender to effect any of these options. Lenders are not required to reduce a borrower’s principal or agree to a short sale of the property.
But there are some strong incentives for them to do these things. You won’t know until you contact your lender. So, get in touch with your lender! It is the first, second and third thing you need to do.
Another reader wrote in to stress the importance of title insurance.
In my answer to a recent question about a property that failed to close because of a title problem, I said, “The owner undoubtedly had title insurance.”
Actually, that’s not always true, according to Barry Gordon, a Quincy attorney. Gordon said that many owners, in fact, do not have title insurance.
Gordon said the reason is because some real estate agents and lawyers discourage buyers from purchasing title insurance as an “unnecessary” expense. This is unwise.
All property owners should have title insurance. Title insurance covers any loss or damages the property owner may suffer as a result of a title problem. Since any sale of real estate is contingent on the seller delivering a clean title, a title problem could result in major damages.
All property owners should have title insurance no matter what somebody else may tell you. Point well taken.
