Overview of the Government’s Programs to Reduce Principal on Underwater Mortgages
The Obama administration has been increasing its support for programs to induce banks and others to trim loan balances for homeowners that owe more than their homes are worth. Here's an overview of the three programs trying to increase the number of underwater borrowers who can get help.
HAMP Principal Reduction Alternative
An addition to the government's main loan modification program, HAMP-PRA requires banks and others that service mortgages to consider reducing principal for borrowers who owe at least 115 percent of the value of their home, have faced hardship, and have already defaulted or will soon default. Reductions are voluntary and must cost less than a regular HAMP modification or a foreclosure. Bank of America and Wells Fargo have both agreed to participate for loans they own in their own portfolios.
Hardest Hit Fund
Several states that have seen significant housing price declines announced principal reductions as part of Treasury's Hardest Hit Fund program. California, Nevada and Arizona are the largest states that require the lender to match dollar for dollar any money the states spend to reduce the principal. The state programs typically have a number of eligibility limitations, including that borrowers must be behind on their payments and have faced a documented hardship. So far only Bank of America has agreed to participate for loans that it owns in its own portfolios.
In September, Treasury and HUD launched a refinance program through the Federal Housing Administration, a federal agency that insures mortgages, that allows borrowers who are current but underwater to refinance into a new, smaller loan. Lenders must agree to erase at least 10 percent of the outstanding principal.
Banks and the government have fallen short in helping homeowners in danger of foreclosure.
The Story So Far
Systemic failures at the country’s banks and mortgage servicers have exacerbated the most severe foreclosure crisis since the Great Depression, and government efforts to limit the damage have fallen short. ProPublica created an unrivaled database of homeowners who have faced foreclosure, opened a Facebook page to encourage homeowners to share their stories, wrote profiles of some of them, and incorporated their experiences into our reporting. We also provided a comprehensive rundown of the numbers behind the crisis.
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