Looking at forgotten loan modification programs, have you asked your lender today?

Principal forgiveness can help qualified homeowners who are past due and underwater.

Bank of America’s National Homeownership Retention Program NHRP has modified the program to look at loans that maybe eligible for a principal reduction. Question is how many home loans have really been eligible for this program? How many homeowners know about this program? I’ve been in the loan modification business for over three years and I cannot remember any one every offering this program to any of my clients.

Let’s take a closer look at how it works some examples and the options. To be eligible for the principal forgiveness:
- 60 days past due on mortgage
- Remaining principal balance on your home must be more than 120% of the current value.

The maximum amount you can be forgiven for is 30 percent of the remaining principal balance. Your loan to value cannot go below 100 percent; the reason for this, your home’s value is now equal to what you owe and moving forward you are ready to build some equity back into the property. This principal reduction will be spread out over 3 or 5 years and this will apply to loans being considered for the Home Affordable Modification Program HAMP.

So depending on your situation, the principal will be forgiven in equal amounts over 3 or 5 years. The 5 year option the amount that is forgiven in year 4 and 5 is conditional and based on the current value of your home. We stress if you are approved for this type of a loan modification, you most stay current on your mortgage, defaulting could affect your eligibility. So now, let’s take a look at some sample scenarios to the principal reduction through NHRP.

Sample scenarios: Let’s say you owe about $250,000, but the value is now only $200,000.

You would be eligible for a $50,000 principal forgiveness
Say the current principal balance of a mortgage is $250,000, but the home is now only worth $200,000. This loan may be eligible for $50,000 of principal forgiveness. Here’s how that could work with the 3-year and 5-year options.

3-year option
Amount you pay interest on Principal forgiveness New principal balance
Year 1: $200,000 $16,667 $233,333
Year 2: $200,000 $16,667 $216,667
Year 3: $200,000 $16,667 $200,000
5-year option
Current home value Loan-to-value (LTV) ratio Amount you pay interest on Principal forgiveness New principal balance
Year 1: $200,000 125% $200,000 $10,000 $240,000
Year 2: $202,000 119% $200,000 $10,000 $230,000
Year 3: $202,000 114% $200,000 $10,000 $220,000
Year 4: $206,000 107% $200,000 $10,000 $210,000
Year 5: $208,000 101% $200,000 $2,000 $208,000
Note: The numbers above are for sample purposes only and individual results may vary.