Treasury officials confirmed that the Administration was examining principal reduction as a tool in the modification arsenal. Shortly thereafter, Bank of America unveiled a principal reduction program for borrowers whose LTV ratios are more than 120% (which is a large percentage of Nevadans as approximately 62% of our market is thought to be underwater). Hopes have been high as they were with prior announcements of principal reduction programs.
The Bank of America program targets three mortgage products: 1) subprime loans; 2)payment-option mortgages with negative amortization features; and 3) 2-1 adjustables that offered teaser interest rates for the first two years then converted into annual adjustments. The program is an earned or phased in approach to the reduction. The idea being, if you stay current over a specified period of years, you will gradually earn the whole of the agreed upon reduction amount.
Following suit, Wells Fargo has also put together a selective principal reduction program for certain underwater loans. The hope is that, either through in-house or government leaning, principal reduction programs will begin to take root. Accordingly, be aware and intrigued; question your lender or servicer if you are interested in keeping your home. If your inquiries are shut down or you are not certain as to what type of loan you purchased, you can utilize state or federal regulations to help you get the information that you need.