Wednesday, October 6, 2010

OneWest Becomes Early Adopter of HAMP Principal Reduction Program

OneWest Bank, the Southern California regional lender that was formed out of the old IndyMac, announced Tuesday that it has implemented the new Principal Reduction Alternative (PRA) piece of the administration's Home Affordable Modification Program (HAMP). OneWest is one of the first servicers to officially launch the program, which was initially introduced by the Treasury in late March to provide some mortgage relief to the growing number of homeowners underwater on their mortgage.

The bank gave the following example to illustrate how principal is forgiven under the program.

A borrower with a principal loan amount of $200,000 and a property value of $150,000 is eligible for a principal reduction of $27,500. Through the PRA program, the borrower’s loan will be reduced to $172,500 and their loan to value ratio will be reduced from 133.3 percent to 115 percent. As long as the borrower is never behind more than three payments, on each of the first three anniversaries of their modification, one-third of the $27,500 ($9,167) will be permanently forgiven.

The PRA program has been structured to conform to the guidelines of HAMP and therefore, borrowers will continue to be eligible for incentives under the federal program, including an additional principal payment of up to $1,000 for each of the first five years, if the borrower maintains good standing.