If you are significantly underwater on your mortgage, meaning that you owe more than your property is worth, you might be able to reduce the amount you owe on your home as part of the Principal Reduction Alternative (PRA) program.
PRA and HAMP
The Principal Reduction Alternative (PRA) is a portion of the government’s Home Affordable Modification Program (HAMP). HAMP was introduced to help reduce struggling homeowners’ monthly mortgage payments through loan modification by reducing your payments to a more affordable percentage of your income as well as forgiving part of what is owed.
Once a loan is found to be eligible for HAMP, the loan servicer gives the borrower a three-month trial period modification, during which the borrower is required to make reduced payments. The borrower receives a permanent loan modification once they successfully complete the trial period as long as the financial information and eligibility remains the same.
The PRA program permanently reduces the balance of the loan. As long as the borrower is not more than 60 days delinquent, some of the principal on the HAMP modification is forgiven and the borrower is not required to pay it back.
A PRA is not automatically given with a HAMP modification – the loan servicer must also consider whether a PRA should also be given to the borrower.
PRA Eligibility Requirements
To qualify for a principal reduction under PRA you will need to meet the following criteria:
- You are underwater on your mortgage and your current loan to value ratio is greater than 115%.
- Fannie Mae or Freddie Mac do not own or guarantee your mortgage. Note: Eligible homeowners may be offered HAMP modifications under related programs, but these related programs do not contain the principal reduction provision with mortgage loans that are owned or guaranteed by Fannie Mae or Freddie Mac.
- Your home is your primary residence.
- Mortgage was taken out on or before January 1, 2009.
- The monthly mortgage payment amount is greater than 31 percent of your gross (pre-tax) monthly income.
- Outstanding balance on your first mortgage loan is no more than $729,750.
- You are delinquent on your mortgage payments or in danger of falling behind and can prove you have experienced a financial hardship.
- You’re able to provide evidence of income sufficient to support the modified payment.
- Within the last ten years you have not been convicted of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction.
More information about the HAMP and PRA programs is available at www.makinghomeaffordable.gov