OneWest Bank, FSB, the Southern California regional lender that was formed out of the old IndyMac, announced Tuesday that it has implemented the new Principal Reduction Alternative (PRA) piece of the administration’s Home Affordable Modification Program (HAMP).
OneWest is one of the first servicers to officially launch the program, which was initially introduced by the Treasury in late March to provide some mortgage relief to the growing number of homeowners underwater on their mortgage.
“We are pleased to now offer principal reduction as yet another solution to help more borrowers stay in their homes,” said Steven Mnuchin, the bank’s chairman. “OneWest continues to be extremely supportive of both the FDIC’s and the Treasury’s leadership in the loan modification arena and appreciates the opportunity to be an early adopter of this important program.”
According to a statement from OneWest, during the initial launch of the PRA program, the following loans will be eligible for principal reduction:
- The loan must be owned by OneWest Bank or serviced as part of an investor pool that has given OneWest the authority to implement HAMP.
- The loan must be at least 60 days delinquent.
- The home must be owner occupied.
- Qualifying loans must have a loan-to-value ratio in excess of 115 percent, determined by a current assessment of the home’s value.
- Loans that are serviced on behalf of Fannie Mae, Freddie Mac, or the Federal Housing Administration (FHA) and VA loans are currently not eligible for this principal reduction program.
Principal will be forgiven over a three year period in three equal installments. The amount of the reduction will initially be treated as a principal forbearance and will be non-interest bearing.
The bank gave the following example to illustrate how principal is forgiven under the program.
A borrower with a principal loan amount of $200,000 and a property value of $150,000 is eligible for a principal reduction of $27,500. Through the PRA program, the borrower’s loan will be reduced to $172,500 and their loan to value ratio will be reduced from 133.3 percent to 115 percent. As long as the borrower is never behind more than three payments, on each of the first three anniversaries of their modification, one-third of the $27,500 ($9,167) will be permanently forgiven.
The PRA program has been structured to conform to the guidelines of HAMP and therefore, borrowers will continue to be eligible for incentives under the federal program, including an additional principal payment of up to $1,000 for each of the first five years, if the borrower maintains good standing.
OneWest noted that not all borrowers who are HAMP-eligible will be eligible for PRA, even though they may receive a HAMP modification.
Borrowers who submit an application for a HAMP modification but have not previously received a HAMP modification will be evaluated for a PRA; however borrowers who had previously received a HAMP modification are not currently eligible for PRA at this time.
By Carrie Bay, DSNews
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