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Help For Underwater Homeowners – One-time principal reduction plan

In mid-April the Federal Housing Finance Agency (FHFA) announced a new program aimed to help homeowners with a Fannie Mae or Freddie Mac loan that are seriously underwater on equity, meaning that their mortgage balance is at least 115 percent of the current value of their home.  This new principal reduction modification program offers, to those that qualify, a one-time reduction in the balance of their mortgage to bring them out of a negative equity position.

Below is an outline of the program details as well as link to Principal Reduction Fact Sheet:

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Principal Reduction Program Fact Sheet

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  • Underwater borrowers who meet the program’s eligibility criteria will receive a solicitation letter from their lender containing terms for a modification no later than October 15, 2016.
  • The modification terms include capitalization of outstanding arrearages, an interest rate reduction down to the current market rate, an extension of the loan term to 40 years, and forbearance of principal and/or arrearages up to a certain amount to be converted later to forgiveness.
  • Upon completion of three timely payments and acceptance of the final modification, the principal forbearance amount calculated under the Streamlined Modification will instead be forgiven.
  • Servicers will require time to implement the Principal Reduction Modification program.  Before the program is fully implemented, borrowers who believe they may be eligible for a Principal Reduction Modification and wish to pursue one before the program is fully implemented can accept an offered Streamlined Modification that will halt foreclosure proceedings but will not guarantee principal forgiveness.
    • If the borrower is later determined to be eligible for a Principal Reduction Modification, the Streamlined Modification’s principal forbearance will be converted to principal forgiveness.
    • Non-eligible borrowers will continue to benefit from the payment relief granted under their Streamlined Modification but will not receive principal reduction.
  • Borrowers should not default on their mortgage or on an existing modification in an attempt to become eligible for a Principal Reduction Modification.  To be eligible, borrowers must be at least 90 days delinquent as of March 1, 2016.  Borrowers struggling to pay their mortgage or who have additional questions about the program should contact their servicer (the company to which they send their mortgage payments).

 

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