A new program issued by the Federal Housing Administration (FHA) requires lenders to reduce the principal by at least 10% for qualified borrowers. Borrowers can qualify for the FHA principal reduction program if they are current on their payments and their loan was acquired from a failed bank seized by the FDIC. Additionally, the program is open to borrowers whose mortgages are not currently insured by the FHA. The maximum allowed loan to value (LTV) of the combined loans is 115%. Principal reductions must bring the new FHA loan’s LTV to 97.5% and make the new payments account for 31% of the borrower’s gross monthly income including second lien mortgages.