BiggerPockets

Please share any successful principle reduction situation you experienced. Is this really possible? Bringing down loan balance to current market value?

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Okay.... thats funny. W/hat I was asking is if anyone out there had successfully modified their loan balance down to CMV.

(Not how to pay your loan balance down to CMV.... thats pretty obvious that if you pay it down, your balance is going to go down.....?? Not sure what advice that was for.. but thanks)

Im also referencing to claims from the "loan modification companies" out there that states they can lower your loan balance to CMV.

Thanks

And, it appears in some cases, these loan mod companies mostly separate you from a few grand and leave the loan unchanged. Use caution.

The principle reduction loan modifications are sort of like an urban legend right now. I know of a number of people who know people who got principle reduction, yet I have yet to have any success personally or see the proven docs myself to verify any of the case examples. I have also spoken to 4 different law firms that say they are able to negotiate a principle reduction loan modification. McFarlin Law out of Irvine, California is one of the law offices I have met with that are claiming they are doing principle reductions. But when I said "Prove it" they told me it was a violation of attorney/client relationship to show me documentation. (That's probably true.) I will have to totally disagree with the statement that market value is what a person is willing to pay for a property. It SHOULD be that way, but unfortunately in this market it is not. With all of the loan regulations and the recent change in the appraisal laws, appraisers are setting market value. In a short sale, the value is solely determined by a bpo or appraisal, in an REO sale the value is solely determined by the asset manager who is going off of his bpo's. In a standard sale, the price is determined by the appraisal. I have too many recent examples of a buyer willing to pay asking price for a property, but the appraisal coming in conservatively low and the lender refusing to write the buyer's loan for the agreed purchase price. The valuie is "knocked" to the appraised value and the seller can either sell for that price, or end the excrow. Principle reduction loan mods are also determined by an independent appraisal of current market value. In theory the lender can reduce the principle balance of the loan to the current market value and your new payments would be structured from this new balance. That is what the government programs (short-refi) are based on. Government Refinance Assistance
The borrower would need to prove they could pay the new balance of the mortgage and if the resolution is better than the lender taking the property back through foreclosure, then a deal can be made. Again, I have yet to have any luck on these as every lender has said, "Oh, the investor on this loan isn't doing principle reduction." It is mostly through a B.K settlement that people are getting principle reductions, and we will see more of these as the rules have recently changed to allow B.K. judges to restructure the loans.
There are two sides to the principle reduction argument. One side says that lenders should be forced to keep people in their homes because they are going to lose huge sums foreclosing on the property anyway, why not restructure the loan and keep the current resident in the home. The other side says this is a sure way to collapse the entire system. If one's neighbor told you they just got their balance reduced from 300,000 to the current market value of 175,000, every neighbor on the block will want a loan mod as well, and it will set into default loans that might have otherwise remained current.
Just my humble opinion.

Just to put up a devil's advocate position. The current market value for any house is what the seller and buyer decide upon for that house in that condition. It is often true that the appraisals influence what the buyer and or seller decide to offer and in this way they affect the CMV, however it is the amount that they agree upon.

Now come in the other factors, such as how much the financial institution is willing to finance. This does not change the CMV but goes only toward how much of that CMV they are willing to finance. If the owner wants to sell, he can take back a second position loan for the difference between the CMV and the financed amount.

If the buyer already has the cash then the financing value assessment does not even enter into the picture and the CMV will still be the agreed upon sale amount.

The other part of the equation on assessments comes into play when you finance a home and an insurance policy is required. The insurance company will do their own value assessment and will not insure the home for more than what they consider the replacement cost value. And most banks require that this amount be equal to or greater than the amount that they are willing to finance.

But then again when the buyer brings cash from whatever source he has there is no requirement for that insurance and you are right back to the CMV instead of financiable value or insurable value.

The Currment Market Value for any particular home in the end is determined by only the buyer and seller and is based upon the home itself with all its unique draws to each of them regardless of what home values in the area have been traditionally going for.