What is principal reduction and how does it help homeowners?

How much does principal reduction help homeowners struggling with their mortgage due to a financial hardship?

Just ask homeowners Charles and Kathleen, Gordon and Bettie, or Elaine (click the links and read their stories).

All these homeowners have benefited from Keep Your Home California’s Principal Reduction Program, which offers as much as $100,000 in principal reduction – all for free. In fact, almost 9,500 homeowners have been approved for the Principal Reduction Program.

charles

Charles and Kathleen

The popular program assists homeowners with unaffordable and/or underwater mortgages in California. About one of every eight homeowners with a mortgage in California has a negative equity mortgage.

Almost half of the homeowners approved for Keep Your Home California in second-quarter 2016 were enrolled in the Principal Reduction Program.

The program lowers principal – the amount owed on the mortgage – and also often reduces the monthly payment. In fact, the average homeowner approved for the Principal Reduction Program enjoyed a monthly mortgage payment reduction of $258, from $1,400 to $1,142.

That means fewer dollars owed and more money in your pocket. It’s a winning combination for everyone, from homeowners to local businesses.

San Francisco homeowners Charles and Kathleen save about $300 every month, thanks to Keep Your Home California’s Principal Reduction Program. “It’s like a weight taken off our shoulders,” Charles says.

elaine

Elaine

The lower monthly payments have definitely helped Elaine of Southern California, who was forced into an earlier-than-planned retirement and receives significantly less income, mostly from Social Security. Her principal was reduced by $81,500, which lowered her monthly mortgage by almost $400.

 

“It’s really made a big difference,” Elaine says

Bettie and Gordon, also of Southern California, save a few hundred dollars every month from the program.

“That was probably one of the happiest days of our lives,” Bettie says of when she and her husband were approved for the Principal Reduction Program.  “The big thing is we are still in our home, and we can stay here.”

bettie

Bettie

And that’s the goal behind the Principal Reduction Program. A vast majority of homeowners who have received principal reduction assistance from Keep Your Home California remain in their home two years later.

Keep Your Home California has three forms of principal reduction. Each plan helps homeowners in a unique way.

  • Principal Reduction-Affordability Provides principal reduction assistance to eligible homeowners with an unaffordable mortgage payment, defined as a debt-to-income ratio greater than 38% of the gross household income. The homeowner does not need to have an underwater – or negative equity – mortgage. The average homeowner has their principal balance reduced by $64,478, and the monthly payment by $296.
  • Principal Reduction-Recast Allows homeowners to obtain an affordable payment and lower total debt associated with their negative equity mortgage without using a servicer-provided loan modification. The rate and terms of the loan do not change, the loan is simply re-amortized based on the new, lower outstanding principal balance, which leads to lower monthly payments. The average homeowner has their principal balance reduced by $56,306, and the monthly payment by $217.
  • Modification In conjunction with a servicer-provided loan modification, program funds are used to lower the homeowner’s outstanding principal balance. The modification changes the terms of the mortgage to ensure the homeowner will have affordable monthly payments going forward. The average homeowner has their principal balance reduced by $37,193, and the monthly payment by $540.

Now, homeowners must have endured a financial hardship, such as a job loss, cut in pay, divorce, death in the family, extraordinary medical bills, or other financial challenges in order to qualify for the Principal Reduction Program. Keep Your Home California representatives will help determine whether the hardship qualifies for the program.

California Suburban Sprawl

 

Homeowners must meet county-by-county income requirements and their mortgage servicer – the company that collects the monthly payment – must participate in Keep Your Home California. Almost 190 servicers are enrolled in the Principal Reduction Program, including Bank of America, Wells Fargo and U.S. Bank.

Homeowners interested in learning more or applying for the program should call the counseling center at 888-954-KEEP (5337) or find more information at www.KeepYourHomeCalifornia.org or www.ConservaTuCasaCalifornia.org for Spanish speakers. The counseling center is open 7 a.m. to 7 p.m. weekdays and 9 a.m. to 3 p.m. Saturdays. Calls can be taken in virtually any language through a free translation service.

 

 


Keep Your Home California eligibility requirements protect taxpayer funding

If a close relative trusted you with a lot of money and wanted you to spend it wisely, you would feel a sense of duty and responsibility, right?

Well, that’s the situation for Keep Your California.

Uncle Sam – also known as the U.S. Treasury Department – has issued $2.36 billion to Keep Your Home California during the past five years, with the funds reserved to help homeowners who are struggling with their mortgages due to a financial hardship.

The goal has always been to help prevent avoidable foreclosures and ensure that homeowners who receive assistance are repositioned in a way that ensures they will be able to make their payments going forward. The ideal outcome is to stabilize communities for the long-term, not simply kick the can down the road.

However, an equally important goal for Keep Your Home California is to be good stewards of the federal funds – your tax dollars.

piggy bank

It’s a commitment that program officials take very seriously. Keep Your Home California established four programs in 2011, allowing low to moderate income homeowners to catch-up on past-due amounts, have their monthly payments made for them while they are out of work, or even reduce their outstanding balance and cut their mortgage payments – all for free.

The state-managed program has been a huge success, with more than $1.5 billion already provided or scheduled to 65,000-plus California homeowners. The program has enjoyed record quarters for funding issued during the past year.

 

Many homeowners still need Keep Your Home California. And, Keep Your Home California is here to help.

At the same time, the federally funded program must ensure that homeowners meet eligibility requirements, from county-by-county income limits to an identifiable financial hardship, such as a job loss, cut in pay, divorce, death or extraordinary medical bills.

In addition, Keep Your Home California must consider factors to evaluate the affordability of the home, so that there are reasonable assurances the homeowners will remain in their home after the assistance is provided. If a homeowner is behind and cannot afford their monthly payment, it does not make sense to use program funds to catch them up, only to have them fall behind again.

FamilyinFrontofHouse

Keep Your Home California eligibility criteria helps to make sure homeowners are left in a sustainable situation, as evidenced by the fact that 93 percent of homeowners who receive assistance are still in their homes two years later.

The standards that have been set to identify qualified homeowners are not meant to be a barrier to accessing the assistance. Rather, they were established to make sure that program goals are met.

Keep Your Home California must safeguard taxpayer dollars – and the program must be an effective and appropriate use of these federal funds. Some may feel it’s a hassle, but homeowners applying for the program are required to provide documents, like income information and tax returns, in order to show they have suffered a financial hardship and need the assistance.

Applicants cannot be involved in an active bankruptcy and must live in their home. Keep Your Home California was not established to help with income properties or second homes. And, of course, homeowner credit information and mortgage details are collected and considered.

Then, Keep Your Home California and the homeowner’s mortgage servicer – the company that collects the monthly payments – review the collected information to see if the applicant qualifies for assistance.

It’s much like applying for a mortgage, as it should be, since homeowners approved for the program could receive as much as $100,000 in free mortgage assistance – either from one lump-sum under the Principal Reduction Program or a combination of programs.

Senior Couple at Home

Homeowners do not directly receive the dollars; the funds are delivered from Keep Your Home California to the homeowner’s mortgage servicer so the money can be applied to the homeowner’s mortgage as intended. It’s just one more way to ensure funds are used appropriately.

Make no mistake; Keep Your Home California officials want to help as many homeowners as possible, as long as they meet the program requirements.

In fact, Keep Your Home California has expanded the program on several occasions – for example, increasing mortgage assistance from 12 to 18 months for out-of-work homeowners under the Unemployment Mortgage Assistance program – to allow more homeowners to benefit from the program. Keep Your Home California also added the criterion of negative equity equal to or in excess of 120% of the property value as a qualifying financial hardship for the Principal Reduction Program.

Keep Your Home California cannot add, change or modify a program without an extensive review and approval by the U.S. Treasury Department. It’s all about effectiveness, accountability and responsibility.

Finally, every dollar allocated to Keep Your Home California must be used for the program. Funding cannot be used for other programs or the state budget – only Keep Your Home California.

SONY DSC

Not everyone who contacts Keep Your Home California will qualify for assistance – and that is not necessarily a bad thing. Eligibility criteria are Keep Your Home California’s first line of defense against people trying to defraud the program. The mission is to help homeowners who are at risk of foreclosure due to no fault of their own and whose options are limited. And, the responsibility to utilize the federal funding to achieve this mission is of utmost importance.

Now that you know how and why Keep Your Home California ensures the funding is being used wisely, learn how the free program can put the money to work for you.

Homeowners interested in learning more or applying for the program should call the counseling center at 888-954-5337 or find more information at www.KeepYourHomeCalifornia.org or at www.ConservaTuCasaCalifornia.org for Spanish speakers. The counseling center is open 7 a.m. to 7 p.m. weekdays and 9 a.m. to 3 p.m. Saturdays. Calls can be taken in virtually any language through a free translation service.