Foreclosure Business News of the Day: Principal Reductions Finally Becoming a Reality — Homeowners to Get $20,000 Off Their Mortgage Balances?
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According to the MSNBC.com article, Deal could cut principal on 1 million loans, 1 million homeowners could be helped, If that’s the final number, that would equal an average reduction of $20,000 that each homeowner would have slashed off what they owe on their mortgages.
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Stopping Foreclosure: Is This a Good Deal for American Homeowners?
Before a final deal is even hashed out, many housing experts are asking, “Is this enough to help homeowners?”
When you consider that roughly 11 million U.S. homeowners are underwater on their mortgages — and by much more than $20,000 — it’s a good question.
Foreclosure Statistics: How Underwater are U.S. Homeowners?
According to The New York Times article, Political Push Moves a Deal on Mortgages Inches Closer:
About 11 million more own homes that are “underwater,” meaning the amount of money owed now exceeds the value of the home. They owe, on average, $45,000 to $50,000 more than their home is worth, according to Mark Zandi of Moodys Analytics. The deal may help about one million homeowners with an average debt reduction of $20,000.
While any mortgage principal reduction is appreciated, one has to wonder, how will homeowners who are so underwater will respond. Will they bite the bullet and accept this offer, or will they decide to walk away after surmising that this is the only help they’re going to get.
Only time will tell.
Stopping Foreclosure: The Tax Consequences of a Principal Reduction
One commentor on the above-mentioned MSNBC article astutely asks: What I would like to know is how the IRS will react with a change in principal. The difference between what is actually owed and the newly adjusted principal will be taxable. This is often kept out of the whole picture!
Related Article: Home Foreclosure and Taxes: Important Tax Consequences of a Short Sale after December 31, 2012.
President Obama may discuss this home foreclosure deal that includes principal reductions in his State of the Union Address tonight.
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