U.S. Foreclosure Rescues: Few Borrowers Overall Getting Principal Reductions

Of the homeowners eligible for the government’s foreclosure-rescue effort, 74 percent received some form of principal reduction with their loan modification in October, according to the latest update from U.S. officials.
But the actual number of borrowers getting this type of assistance only represents about 11 percent of the 840,000 permanent loan modifications under the Obama Administration’s Home Affordable Modification Program (HAMP).
More than 95,000 active modifications contain some sort of mortgage principal reduction under HAMP, according to the latest figures through October released yesterday. HAMP’s initial goal in 2009 was to assist up to 4 million homeowners who could face foreclosure without assistance.
Under both HAMP and the terms of a settlement with lenders over foreclosure abuses, borrowers can qualify for mortgage principal forgiveness if they have a loan-to-value ratio greater than 115 percent when evaluated for a mortgage modification.
But lenders have been reluctant to reduce principals, drawing criticism from homeowner advocates and forcing the Obama Administration to increase incentives to the mortgage servicers.
Treasury issued new guidelines in February of this year that tripled financial incentives under HAMP for investors who agree to reduce principal for eligible “underwater” homeowners. The new program guidelines apply toward loans not owned by Fannie Mae or Freddie Mac.
Principal reductions can be featured as part of a HAMP trial or permanent modification.
Homeowners currently in HAMP permanent modifications with some form of principal reduction have been granted an estimated $8 billion in principal reduction through October.
Seventy-four percent of eligible borrowers entering HAMP in October received some form of principal reduction with their modification.
Less than a third of those 74 percent who had some mortgage principal forgiveness qualified for that assistance under the terms of the $25 billion settlement of mortgage servicing deficiencies between the five largest mortgage servicers, the Federal government, and 49 state attorneys general.
The mortgage settlement, finalized early this year, has recently caused servicers to increase the use of principal reductions outside of the HAMP effort.
The HAMP-only portion of principal reductions was 56 percent for October, with the remainder of the 74 percent falling under the terms of the national mortgage settlement.

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