Principal Reduction Alternative comes to HAMP
The latest version of HAMP, or the Home Affordable Mortgage Plan,
has acomodations for underwater mortgages to have mortgage
principal reduction accounted for. Applications for this program will be
processed starting today, Nov. 1, 2010. It is called Principal Reduction
Alternative, or PRA. It is even more crucial now that the distressed
mortgage owner get the REST Report as an indispensable tool of their
mortgage modification application an calculate this option if need be.
The REST Report version 4.0 will now apply the 'waterfall test' to
HAMP eligible mortgage modifications, specifically targeting the
Principal Reduction Alternative. Basically this 'waterfall test comes
after initial qualifications for a HAMP mortgage modification fail. All
mortgage modifications, whether HAMP or lender in-house programs,
follow the same guidelines: interest reduction, mortgage term
extension, and finally, mortgage principal reduction.
The Net Present Value calculations provided in the REST Report will
positively influence your mortgage investor in your mortgage
modification negotiations. Mortgage modification or short sale -
ANYTHING BUT FORECLOSURE!
The REST Report uses the same software platform that the banks use
in calculating the terms of any mortgage modification, or even a short
Currently, there is no advantage to paying a third party to negotiate
your mortgage modification. Why pay someone to do what you can do
yourself? The REST Report calculates an unbiased report as to the best
resolution to your distressed mortgage: mortgage modification, short
sale, and now, mortgage principal reduction.
TARP (Troubled Asset Reduction Program) was a year late.
HAMP (Home Affordable Mortgage Plan) was a year late.
And now the PRA (Principal Reduction Alternative) is a year late.
The problems with HAMP are not intention, but with federal
enforcement. One could expect that will be a problem with PRA. It is
up to the distressed homeowner to use the REST Report in the state's
courts to ensure application and enforcement for their unique
The US Treasury’s new Principal Reduction Alternative (PRA) was
scheduled to become effective on October 1, 2010, or whenever
version 4.0 of the HAMP NPV is implemented, which ever is later.
HAMP’s NPV Version 4.0, was originally scheduled to be released on
June 1, 2010. Reportedly, testing of 4.0 was well underway and was
scheduled to be released to the servicers in the next couple of weeks.
HAMPs version 4.0 is released today, Nov 1, 2010.
Net Present Value, or NPV 4.0 is what drives the PRA, which is a
“deferred principal reduction program” that allows the homeowner to
earn a principal reduction over a three-year timeframe by making all
payments in accordance with the loan’s modified terms. Under the
PRA, servicers are required to evaluate the benefit of principal
reduction for every HAMP eligible loan with “high negative equity,”
which Treasury defines as having a market-to-market loan-to-value
ratio greater than 115%, using both the Standard and the Alternative
The crucial aspect here is that servicers are required to evaluate a
property's suitability. The REST Report will do that for the homeowner.
It ensures that the mortgage servicer is not left to their own
There are two 'Waterfall' tests for the lender/servicer to consider.
The mortgage servicer is free to use their internal calculations to see if
there is another, more beneficial in-house lender program available to
them as a solution to reconciling a given non-performing asset. This
makes possession and inclusion of the REST Report in a mortgage
modification application even more critical.
Apparently, this PRA, or Principal Reduction Alternative, is reported to
the Internal Revenue Service and may have tax consequences as
income. Given the abatement of tax consequences on negotiated
mortgage deficiencies on short sales in 2010 and 2011, I'd bet
something will be done by then. Basically, if proceeds from a refinance
were used to improve the same property, they will not be taxed. If
however, proceeds from a refinance went to say, ATVs and a trailer,
they will be taxed. Get it?
Second mortgages held by the same lender/servicer are to be treated
the same as the first mortgage.
The lender/servicer is required to respond to a complete mortgage
modification application within 30 days. This is another critical point
that makes the REST Report crucial. The secret here is to make sure
complete documentation is mailed USPS certified mail, return receipt
requested (with the REST Rport on top); so that the mortgage servicer
can't 'misplace' the file or contend that you never sent it. The 30 day
requirement clock starts ticking when the mortgage servicer has every
required document accounted for.
More responsibility will be placed on the borrower to keep current with
negotiated payments. One more reason to not pursue a doomed
mortgage modification. If mortgage modification is the best solution,
the REST Report will reveal that. Short sale, the same. Principal
Reduction, the same.
The Helping Families Save Their Homes Act of 2009 (HFSTHA)
established a Servicer Safe Harbor, and TILA was amended for the
purpose of providing a safe harbor to enable such mortgage servicers
to modify and refinance mortgage loans under a “qualified loss
We are seeing spectacular results in the courts when the REST Report
is included as part of a foreclosure defense. State judges immediately
recognize the unbiased calculation of Net Present Value, as well as all
the other myriad calculations, in ruling and requiring mortgage
servicers to negotiate a mortgage modification in good faith. We have
run approximately 1500 reports with astounding receptiveness.
I am a proud vendor of the REST Report. I also have the best
Hardship letter template anywhere.
Call Chris at: 970-242-2600
Read more about your Do-it-Yourself Mortgage Modification REST Report
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