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Principal Cuts to Avoid Foreclosures

No less than 7 million homeowners are set to loose their possessions within the next two years if there is no appreciation in the value of properties they hold. As this is the least possibility in the present scenario, lenders must cut the principals on mortgage loans to avoid foreclosures and help their borrowers retain homeownership. This is the summary of a study conducted by Amherst Securities Group on behalf of House Financial Services Committee the previous month.

An initiative in this regard is likely to be taken by Federal Deposit Insurance Corp. which is contemplating on giving incentives to lenders for cutting down principals on mortgages it has acquired from seized banks. The mortgage it owes amounts to $45 billion. Though it is rare to find a bank reducing principal on a mortgage, more than 21,000 home loans have been modified through principal reduction in the third quarter of 2009 alone. According to experts, a $2 reduction in a mortgage principal helps a bank gain $1 from federal assistance programs.

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