The idea of reducing loan principals last month became a centerpiece of the administration's efforts to help seven million households threatened with foreclosure.
Mr. Austin, who is based in Rye Brook, N.Y., noted that someone who five years ago borrowed $220,000 on a 30-year, fixed-rate mortgage at 5.5percentt would have reduced the loan principal to only $203,500, despite having made nearly $75,000 in payments during that time.
Your goal is to reduce your loan principal so that your monthly payments decrease.
California's San Bernardino County and two of its biggest cities are looking into using the power of eminent domain to take underwater mortgages away from investors, reduce the loan principal so that it more closely matched the homes' property value and then resell the loan to a different investor, the Wall Street Journal reports.
This page has long argued that a robust anti-foreclosure plan should directly address the plight of underwater homeowners by reducing the loans' principal balance.
In a bankruptcy, such homeowners would likely have their loan principal reduced, lowering their payments and helping them to rebuild equity.
Credit counselors can help borrowers consolidate their debts and get card companies to lower their interest payments and other fees, but they currently cannot get the loan principal reduced.
The same will be true for homeowners whose loan principal is reduced by a mortgage modification, with the wiped-out loan being treated as taxable income.
The reductions can take place by reducing the interest rate, stretching out the life of the loan or reducing the principal amount of the loan.
As part of the resumed discussions, Dow said it could extend its loan for the deal by a year, but reduced the loan by $500.0 million, to $12.5 billion, on conditions including paying extension fees, reducing the loan's principal to less than $8.0 billion, and complying with a total leverage ratio.
Ask the lender to apply your extra payment to the loan principal amount, which will shorten the payoff time and reduce the amount of overall interest paid.
