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Overview of the Government’s Programs to Reduce Principal on Underwater Mortgages -...

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Eye on Loan M odifications

Overview ofthe Governm ent’s Program s to

Reduce Principalon Underw aterM ortgages
by Karen Weise
ProPublica, Dec. 17, 2010, 9:44 a.m.

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.

See related story: Fannie and Freddie's Gov't Regulator Opposes Reducing Mortgages for Struggling
Homeowners [1]

HAMP Principal Reduction Alternative

An addition to the government's main loan modification program, HAMP-PRA [2] 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 [3] 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.

FHA Short-Refinance

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. 12/29/2010
Overview of the Government’s Programs to Reduce Principal on Underwater Mortgages -... Page 2 of 2


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