Recently the government's HAMP, Home Affordable Modification Program, adopted another method of calculating a homeowner's new payment called the Principal Reduction Alternative or PRA, which provided this huge relief to over 16,000 homeowners.
The average principal amount reduced for permanent modifications is 32.2 percent, or about $69,500. The PRA analysis kicks in when the loan amount exceeds the current market value by 115%.
The Treasury Department, who maintains numbers on the HAMP program, announced this month that over 16,000 homeowners, who received principal reductions, are in their trial payment period. And almost 5,000 permanent principal reductions are in place already since the program supplement was adopted.
The savings on $69,500 at a 4% interest rate over 30 years would save a homeowner over $544 a month and of course provide that much in equity that had disappeared due to the housing crisis. The reductions were as much as 30% and in some cases more
This reduction along with a lower interest rate and sometimes longer amortization period makes the payment ratio meet the 31% HAMP debt to income ratio. It also gives the homeowner an incentive to continue to make their payments as they now have equity again in their homes.
It should be noted that last year without the PRA over 71% of loan modifications were granted through the HAMP program. This new program should certainly increase that success rate greatly as it provides another method of making the payment fit the 31% debt to income ratio mandated in the HAMP guidelines.
It was also reported that this brings the total of HAMP programs in existence permanently to over 633,000 since its inception. It is interesting that over 97,000 fell through due to the borrower not being able to make three consecutive payments on time, a stipulation of the HAMP program.
The primary banks participating in the program are Bank of America, Chase and Wells Fargo. These banks aren't just the lenders but in many cases are the servicers of the loans for other banks that are the actual lender.
However many servicers of loans opted not to adopt the PRA option and thus are no longer honoring HAMP guidelines for modification requests. This obviously reflects their unwillingness to reduce principal on their mortgages.
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