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Fewer Than 5,000 Homeowners Have Received HAMP Mods With Principal Reductions

Treasury released new numbers for the Home Affordable Modification Program (HAMP). New this month is data on the program’s Principal Reduction Alternative (PRA).

Servicers have cut principal balances on 4,938 permanent HAMP modifications under the PRA initiative. Twenty-seven of these have fallen out of the program as 4,911 PRA mods are listed as active.

The administration in March 2010 unveiled a multi-part effort designed to encourage banks to slash principal balances for borrowers whose homes have plunged in value due to the housing bust. It attracted lots of attention at the time. But the program has failed to gain traction.

About 10.9 million U.S. households, or nearly 23% of those with a mortgage, are “underwater” – meaning that they owe more on their properties than their homes are worth, according to CoreLogic Inc. Treasury Department statistics released Friday show that only 4,911 homeowners are participating in the principal-reduction program, which aids borrowers who owe at least 15% more than their properties are worth.

But those homeowners who managed to get their loan balances reduced are seeing substantial principal reductions: The median write-down was about $69,500, or a reduction of more than 32%.

This program and others are part of Treasury’s Home Affordable Modification Program, or HAMP, which was announced in early 2009, but has fallen far short of initial expectations. As of May, it has helped about 633,500 U.S. homeowners avoid losing their homes through permanent loan modifications, compared with an initial goal of helping 3 million to 4 million borrowers.

HAMP mainly provides banks with incentive payments to lower borrowers’ interest rates and extend mortgage terms. The administration announced the additional effort to aid underwater homeowners, under pressure to do more to address the foreclosure crisis.

The Treasury’s “principal reduction alternative” became effective in October. Plus, the Federal Housing Administration launched a “short refinance” program with similar goals last September. That program, however, has assisted fewer than 300 homeowners.

Banks have largely resisted slicing homeowners’ loan balances. Only 2.8% of loan modifications – including government and private-sector programs – made in the first quarter involved a reduction in the total principal amount owed, according to a report by bank regulators earlier this week.

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