See the Principal Reduction Alternative (PRA) page on the website.įor HAMP modifications that include a PRA principal reduction, the unpaid principal balance of the modified loan is divided into an interest-bearing principal amount and a non-interest-bearing PRA Forbearance Amount. If the homeowner then achieves a payment history that is sufficiently timely over a three-year period, the entire PRA Forbearance Amount is eventually reduced to zero.
Since the last quarter of 2010, if a mortgage loan is being considered for a HAMP modification and if the ratio of the amount owed to the value of the home is greater than 115 percent, then the servicer must consider whether a Principal Reduction Alternative SM (PRA) principal reduction should be effected as one part of the HAMP modification. (For mortgage loans that are owned or guaranteed by Fannie Mae or Freddie Mac, eligible homeowners may be offered modifications under related programs also called “HAMP.” Because these related programs do not contain the principal reduction provision that these FAQs address, these FAQs use the term “HAMP” to refer only to the program for mortgage loans that are not owned or guaranteed by Fannie Mae or Freddie Mac.) See the Home Affordable Modification Program (HAMP) page on the website. Sometimes additional modification steps of term extension or forbearance are necessary as well. Sometimes, a change in the mortgage loan’s interest rate is sufficient to reach the 31–percent target. Under HAMP, a participating loan servicer must consider a sequence of modification steps for each eligible homeowner’s mortgage loan until the loan’s monthly payment is reduced to 31 percent of the homeowner’s verified monthly gross (pre-tax) income. Departments of the Treasury and of Housing and Urban Development established the Home Affordable Modification Program SM (HAMP SM) for mortgage loans that are not owned or guaranteed by Fannie Mae or Freddie Mac. To help distressed homeowners lower their monthly mortgage payments, the U.S.
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