If you have suffered a financial hardship and your home is underwater, you may be able to reduce the principal balance of your first mortgage with California's Principal Reduction Program (PRP). PRP is one of the programs in Keep Your Home California. Read on to get an overview of the program, learn how much assistance is available, and find out if you are eligible.
In 2010, the U.S. Department of the Treasury created the Hardest Hit Fund to provide targeted aid to homeowners in those states most affected by the housing market crash. As part of this program, $7.6 billion in aid was allocated to the 18 states, along with Washington, D.C., that experienced the most extreme home price declines and high unemployment rates as a result of the economic crisis.
(Learn more about the Hardest Hit Fund.)
Through the Hardest Hit Fund, California was awarded nearly $2 billion in funds to help eligible homeowners avoid foreclosures by way of four programs, which are collectively called Keep Your Home California. (Get an Overview of Keep Your Home California.) Each program provides a different type of financial assistance to low and moderate-income homeowners. The programs are:
(To learn about the other programs in Keep Your Home California, visit our California Foreclosure Law Center.)
The Principal Reduction Program (PRP) provides funds to reduce the principal balance of underwater mortgages in one of the following ways:
The program provides as much as $100,000 in principal reduction per household.
To be eligible for PRP, you must qualify as a low or moderate-income household based on all of the below criteria.
Additionally, your existing mortgage and the property securing that mortgage must meet the below criteria, among other things.
Mobile homes are eligible if they are permanently affixed to the real property that is secured by the first lien. (Learn more about what happens if you are struggling to pay your mobile home loan.)
Servicer participation in the program is voluntary. (A mortgage servicer is the company that collects monthly mortgage payments from borrowers on behalf of the owner of the loan, as well as tracks account balances, manages the escrow account, handles loss mitigation applications, and pursues foreclosure in the case of defaulted loans.)
Mortgage servicers and lenders, along with Fannie Mae and Freddie Mac, were initially reluctant to participate in the program because it required a dollar-for-dollar match. As a result, of the nearly $2 billion available to help troubled California homeowners, only about one-sixth of that money has been distributed. However, the program has been changed so that the principal can be reduced without a matching contribution from the banks.
Following this change, Fannie Mae and Freddie Mac dropped their opposition to the PRP and more banks, including the largest mortgage servicers such as Bank of America, Wells Fargo, and Chase, have agreed to sign on to the program. (Though these particular servicers are currently limiting their participation in PRP to loan recasts only.)
To find out if your servicer is participating in PRP, go to http://keepyourhomecalifornia.org/participating-servicers.
If the bank provides less than a 100% match, the assistance is provided in the form of a non-recourse, non-interest bearing subordinate loan secured by a junior lien that is recorded against the property. After a certain number of years, the subordinate lien will be released. You only need to repay the loan if you sell the home for a profit or refinance (and take cash out) during that time.
If the bank matches the assistance in an amount equal to or greater than 100% of the PRP assistance provided to the homeowner, then the assistance is not required to be structured as a loan.
To apply for PRP assistance, you can: