Principal Reduction Alternative (PRA)

principal reduction alternative (PRA)The Principal Reduction Alternative program is part of the Making Home Affordable (MHA) but differs in that it was designed to assist the homeowner by encouraging  lenders, servicers and investors to reduce the principal amount owed on the home.   Fannie Mae (FNMA) and Freddie Mac (FHLMC) do not participate in this program, therefore if your loan is owned by either investor, they will not be participants.

The purpose of this program is to reduce the current principal loan balance (usually 20-30%) thereby reducing  your monthly mortgage payment to a manageable amount.

To qualify for this program:

  • The property must be owner-occupied.
  • FNMA and FHLMC cannot be the owners of the mortgage
  • The  property has little to no equity.
  • The mortgage must be a first lien originating prior to or on January 1, 2009.
  • You must provide a written financial hardship letter that discusses the nature of your financial hardship for delinquent payments or future financial hardship.
  • You must be able to document sufficient income to support the new modified payment.
  • The unpaid principal loan balance must be equal to or less than $625,500 for one unit.  Maximum loan amounts for 2-4 units owner-occupied are higher). (Ref . the link here for High Cost Area (HCA) loan limits for 1-4 units   
  • Your mortgage payments are greater than 31% of your gross monthly income.  (However, payments could be less than 31%, at the lender/servicers discretion).
  • No felony, larceny, theft, fraud, forgery, money laundering or tax evasion in connection with a mortgage or real estate transaction within the last 10 years.

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