Keep Your Home California expands Principal Reduction Program to help some homeowners with underwater mortgages

Homeowners flailing financially with severely underwater mortgages could receive a much-needed life vest – possibly as much as $100,000 in principal reduction from Keep Your Home California

The state-managed program will now consider homeowners with a loan-to-value ratio of 140% or greater as suffering a financial hardship, making them eligible for Keep Your Home California. It’s the latest change to the Principal Reduction Program, which has been expanded several times to help more homeowners since the program started in February 2011.


The $2 billion, federally funded program made the change after determining that there are still thousands of homeowners, especially in some of the hardest-hit housing regions such as the Central Valley and the Inland Empire, with loan-to-value ratios of 140% or higher. These homeowners have been sitting on the sidelines, hoping for some help with their severe negative equity.  Under the recent change, the free mortgage-assistance program will help low and moderate income homeowners reduce their loan-to-value ratio to possibly 105%. For example, a homeowner who owes $280,000 on a home with a $200,000 value could have his principal reduced to $210,000.

Of course, homeowners must meet county-by-county income requirements (a complete list is available at and their mortgage servicer must participate in the program.

Currently, more than 100 of the 160 mortgage servicers – including Bank of America and Wells Fargo Bank – participate in the Principal Reduction Program. These servicers manage a large majority of homeowners’ mortgages in California. Check the complete list of mortgage servicers participating at

And homeowners using the Principal Reduction Program must remain in their home for at least five years. If the homeowner sells prior to that date, they may be required to pay back the assistance from the proceeds of the sale of the home if there is enough equity.

The 140% or greater loan-to-value ratio only affects the Principal Reduction Program. The other three programs require more traditional financial hardships, such as a job loss, cut in pay, a divorce or extraordinary medical bills.

Keep Your Home California has helped more than 32,000 homeowners since February 2011.

If you have additional questions or would like to apply for the program, call 888-954-5337 or visit (Spanish speakers should visit The counseling center is open 7 a.m. to 7 p.m. weekdays and 9 a.m. to 3 p.m. Saturdays.

Image courtesy of Renjith Krishnan at