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What Program Can I Use to Lower the Amount I Owe On My Mortgage? – Rich

“Dear Steve,

I have a home mortgage that was modified at very favorable rates. However, in order to motivate IndyMac my attorney told me to stop paying the original mortgage (my income, self-employed was tanking) and they would be more amenable when I made my HAMP application.

My original amount on which I was paying was about $275,000. I was successful in obtaining a HAMP. However, the mortgage now includes the 6 months of unpaid principal, interest and penalties—$74,000–driving the new total amount owed way beyond the value of the house. In other words, they took what I owed and added in an egregious amount of money.

The home was originally valued at $365,000 and recently appraised at $269,000. I currently owe $307,000.
BTW, I have always, both before and since been perfect in my payments.

I know the new refi/HAMP/HARP programs address interest rates but I need to get the total mortgage down to a more realistic number…closer to the value of the house. Are there programs available or coming on line that will address these issues?


Dear Rich,

The ability for lender to write down the loan balance is an issue which is a realistic measure but lenders can’t get on board with this approach.

That being said there have been some cases of banks doing just that, but that appears to have been one-off deals negotiated directly with the bank.

It might just be that the best course of action is a strategic default where you walk away from the home and regroup and rebuild your financial life. Alternatively a chapter 13 bankruptcy may be able to strip a second mortgage if you have one.

Recently Fannie Mae came out against such logical loan balance reductions. There was a good article in the Washington Post about this. See Fannie Mae, Freddie Mac won’t be allowed to reduce loan balances for troubled borrowers.

Please post your responses and follow-up messages to me on this in the comments section below.

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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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