Loan Modification Programs - Principal Reduction - Who Qualifies For It?


The statistics are staggering: $2 trillion dollars lost in home equity last year means that millions of homeowners now owe more than their home is worth. A loan modification program that offers a principal reduction so that the mortgage balance more accurately reflects the homes true market value is one way to entice borrowers to keep making loan payments and avoid foreclosure. Which lenders offer this type of program and who will qualify for a reduction in their home loan balance? Here is some helpful information for interested homeowners.

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The Federal government's policy for loan modification is that if a servicer determines that the lender would suffer a greater loss from foreclosure than it would from modifying the loan, then a loan workout is advised. The Treasury Department has allocated $75 billion, part of which lenders can use to offset losses from principal reductions offered to qualified homeowners.

Who qualifies for this loan modification program featuring principal reduction? To be eligible, a homeowner must:

Live in the home as their principal residence Be facing a financial hardship situation Be able to prove their income and meet certain approval guidelines

The federally subsidized plan, called Making Home Affordable or HAMP, requires participating lenders to conduct an analysis called a Net Price Value for each modification application. This process determines if the lender will save more money by foreclosing or offering a loan workout that features a lower interest rate, longer term or principal forgiveness. Borrowers who have lost a considerable amount of equity may be offered a loan workout that features a lower principal balance. Lenders are expected to begin offering this option to borrowers more frequently to help stem the tide of foreclosures and keep borrowers in their homes.

In addition, a borrower who is not currently delinquent may apply for this loan modification program by demonstrating an inability to make payments due to a trigger event, such as an interest rate reset or loss of job or income. Homeowners will have to prepare and submit a loan modification application that provides evidence of financial hardship and the inability to meet the current loan payments. Financial statements must also show that the borrower will be able to pay and maintain the new lower modified mortgage payment. It is very important to prepare your financial statement correctly and make the necessary adjustments to your budget before your lender review it for approval. If you are confused about your debt ratio, target payment, disposable income or the other qualifications, then you can use the Loan Mod Quick App software that will do all the calculations for you. You can save hours of time and make sure your figures are accurate the first time.

Although not all homeowners will qualify for this loan modification program featuring principal reduction, for those who do meet the requirements an affordable, lower monthly payment based on a lower loan balance will provide the relief needed to stay in their homes and avoid foreclosure.


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