Banks participating in the Home Affordable Modification Program, or HAMP, now will be required to consider writing down the principal for borrowers who are eligible for that program and whose mortgage debt is more than 115% of the current value of their homes. The principal would be reduced in stages over three years if the borrowers kept up on their payments.
Lenders are to receive 10 to 21 cents of federal subsidies per dollar of loan principal reduced, depending on the degree to which the borrower is underwater. Holders of second-lien mortgages that are more than six months delinquent are to receive six cents on the dollar for writing off those loans.
At the same time, the FHA will offer a new way for some borrowers to refinance into a smaller loan. Lenders would write down the principal of a first mortgage at least 10%. The loans would then be refinanced into FHA-insured mortgages for no more than 97.75% of the home's current estimated value. To participate, homeowners must be current on their loan, occupy the home as a primary residence, fully document their income and have a credit score strong enough to meet FHA guidelines.
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