Principal Reduction Alternative (PRA)

What is Principal Reduction Alternative (PRA) Program?

Enacted: October, 2010 – effective for mortgages originated on or prior to January 1, 2009

Principal Reduction Alternative (PRA) offers help to homeowners whose homes worth significantly less than their mortgage loan balance. It offers help to troubled homeowners by reducing their mortgage loans.

Mortgage service companies participating in Home Affordable Modification Program (HAMP) are required to evaluate borrowers who are being considered for HAMP and owe more than 115% of their home value. When mortgage servicers include principal reductions in their mortgage modifications under the PRA program, the principal reduction amount is initially treated as non-interest-bearing principal balance. If the homeowner participating in the PRA program is in good standing on the first, second, and third anniversaries of the effective date of the mortgage loan modification, one-third of the offered principal reduction amount is forgiven on each anniversary.

Purpose of Principal Reduction Alternative Program

Home ownership preservation and home values protection by offering incentives to participating mortgage lenders to use targeted principal reduction in their loan modification programs.

Goal of PRA

To help underwater homeowners that owe more than 115 percent of their home’s value by reducing their principal mortgage loan.

Who may be eligible?

All homeowners in financial hardship who:

  • Owe significantly more than their home is worth
  • Have mortgage loans originated on or before January 1, 2009
  • Owe up to $729,750 on their first mortgage
  • Have a monthly mortgage payment over 31% of their gross monthly household income
  • Are delinquent or in danger of falling behind on their mortgage payments
  • Have sufficient and documented income to support a new modified payment
Contact your mortgage company for details to see if you are eligible.

How to apply?

Contact your mortgage company servicer – the company to which you make your monthly mortgage payments and ask them for Initial Application Package for Home Affordable Modification Program and ask them to evaluate you for Principal Reduction Alternative as well.

There are hundreds of mortgage companies currently participating in Principal Reduction Alternative Program including Wells Fargo, Bank of America, JP Morgan Chase and CitiMortgage.

Best way to proceed is to call a HUD-approved housing counselor and ask about Principal Reduction Alternative Program at: 888-995-4673  (Hearing impaired: 877-304-9709 TTY) to help you understand your options, prepare your application, and work with your mortgage company.