The proposed settlement reached last week between the Federal Government and the five major banks may prove to be nothing more than smoke and mirrors for Long Island Homeowners.
Many Underwater Properties Will Still Remain Underwater
The major prong of the settlement that everyone has been awaiting is principal reductions on underwater mortgages. Under the terms of the settlement, homeowners who will qualify for principal reduction would be slated to receive up to $20,000.00 in principal reduction relief.
While $20,000.00 sounds like a large number, it will not solve the problem faced by most underwater homeowners. On Long Island, a majority of properties that are underwater have mortgage balances that are at least $40,000-$50,000.00 over the current market value. A principal reduction of $20,000.00 would still leave the average property at least $20,000.00 underwater. Underwater is still Underwater. Even if a homeowner becomes one of the chosen few, and the reduction is coupled with a mortgage modification, it could still take a homeowner with a $300,000.00 mortgage at least 3 to 5 years to get back to sea level (break even) – and this does not even account for any accrued interest and other changes that may be added back into the balance when the mortgage is modified.
What If Your Mortgage Has Already Been Modified?
While many of the details will become available over the coming months, this writer will venture to guess that any homeowner who has been already modified could be deemed ineligible for principal reduction. All we can do is wait, see and hope…