Loan Modification Programs-Who gets a Principal Reduction?

Posted by admin On January - 29 - 2009


A loan modification program that offers a reduction in the principal balance is kind of like Big Foot – we hear about it but no one has actually been able to prove it’s existence.  Well, now the Feds are intervening to encourage loan modification programs that will offer principal reductions for borrowers who meet certain qualifications. Here is some important information for homeowners who now owe more than their home is worth and need help with a loan modification program.

The Fed has said that it will give priority to reducing the outstanding loan balance on any loan where the home’s value has decreased by 25% or more.  That is reasonable, as many areas across the country have seen home values plummet 30% or more in the last year alone.  To be eligible for this loan modification program featuring principal reduction, a homeowner must:

  1. Live in the home as their primary residence
  2. Be able to verify their income and meet approval guidelines
  3. Either be delinquent on their mortgage or prove that a trigger event, such as a rate reset or job loss, will cause a payment hardship.

President Obama’s new treasury secretary, Timothy Geithner said that the administration is working on a sweeping program to stablize the banking sector and to address the continuing flood of foreclosures.  This loan modification program offering principal reductions to possibly hundreds of thousands of homeowners is one measure aimed at keeping borrowers in their homes by reducing the loan balance so that it more accurately reflects the homes true market value.  Underwater homeowners need this type of loan modification option to entice them to stay in their home and keep making mortgage payments.

Principal reduction is just one loan modification option, others include a lower interest rate, longer loan term or a combination of all of these to arrive at an affordable and sustainable mortgage payment.  Not all homeowners will qualify for this loan workout, however help is available for those borrowers who know how to get it.  Homeowners who submit an accurate and acceptable loan modification application will be able to increase their chances of success with their lender and receive this type of a loan workout.

Get the help you need to understand how to apply and qualify for a loan modification program by ordering and downloading The Complete Loan Modification Guide. This is a low cost, easy to read handbook that will provide you with everything you need to prepare a professional and acceptable loan modification application. You are provided with all of the necessary forms and given detailed directions on how to complete them properly. The Complete Loan Modification Guide will take you step by step through calculating your debt ratio, completing the financial statements, writing your hardship letter and then putting it all together to submit to your lender. Get started today on the path to secure home ownership, order and download The Complete Loan Modification Guide. For more information about mortgage loan modification, please visit us at:

4 Responses

  1. Janice Holland Said,

    me husband and I are seniors and my husband still trying to work in construction…he is wearing down so fast…barely scraping by trying to pay our mortgage and other expenses…we buit this house ourselves and don’t want to lose it…a lifetime of hard work…help?

    Posted on January 4th, 2010 at 5:28 pm

  2. Mark Said,

    Hello Janice Holland:

    I just started working in mortgage servicing industry and I am researching everyday to understand much more about the modification plans as people are jumping in from every part of the country. I might not be able to give much help, but as I started the job, I have found everwhelming calls regarding to HAMP or Home Affordable Modification Program. I see that you had posted this on Jan, 2010. If you are behind your mortgage payment as is, you should definitely ask your mortgage company to see if they participate on the program. The process takes a bit of time, but once you get the process going, you will get a trial period where your monthly payments will usually be significantly low. As long as your front end ratio or gross income to mortgage monthly payment ratio is higher 31%, there is a chance. However, you should budget your expenses first as some people try to jump into the program while they have not adjusted their expenses according to their recent hardship. There are more prequalification standards, but most important thing is that your monthly payment is either same or higher than 31% of your gross income. Basically, Your Mortgage payment divide by your gross income should come out to 0.31 or higher. You will have to get in contact with your mortgage company consistantly to see how things are going and must send in your paperworks and pay your trial payments if you are at that stage. Also, the plan may not mature into final stage after the trial period, as so you should try best to keep your mortgage current or at least avoid default before you get the plan processing. You will accumulate legal fees each month if get into default. I hope you find a way to lower your payments and able to keep your house.

    Posted on February 18th, 2010 at 9:51 pm

  3. admin Said,

    Thank you for the information-the Obama HAMP guidelines state that your current payment must equal more than 31% of your gross monthly income. This payment includes your monthly payment as well as your taxes, insurance and any homeowners dues.
    A loan modification application that is well prepared will be able to demonstrate to your lender that your current payment is unaffordable, but that with the new target payment-equaling 31% of your gross monthly income-you will be able to afford your home.
    It is so important to work on your financial statement before you ever call your lender. If you need help to figure your debt ratio, target payment, disposable income and new loan terms, you can use the Loan Mod QUick APP-a software program designed just for homeowners that actually mimics the OBama plan guidelines.
    Simply input your own income and expenses, and all the calculations are done immediately. You will see if any adjustments need to be made to your budget before your lender ever looks at it. Actually, you can save hours of frustration and avoid mistakes on your application. The new program guidelines give you just one chance-if you don’t get approved then your home could be moved to short sale or foreclosure.
    There are hundreds of pages of free information-visit and read the blogs. If you feel you need extra help, then you can order The Complete Loan Modification Guide kit and Loan Mod QUick App software program.

    Posted on February 18th, 2010 at 10:29 pm

  4. rosa Said,

    Hello!! I just received a letter from my mortgage company and in it, it says that my home equity loan will be fully forgiven. I called and they stated that yes, that is true, that I will receive a letter in 90 days. How true can this be? I dont believe it, firstable. I dont understand what is going on. what are the consequences?
    thank you!

    Posted on October 16th, 2012 at 8:42 am

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