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There is a new Principal Reduction Program for underwater homeowners.

Beginning less than a year ago a company in Scottsdale, Arizona backed by a $50 Billion hedge fund has started offering underwater homeowners a permanent solution to their nightmare of negative equity. Offering a Principal Reduction Program which essentially is a large scale Note Purchase program on the secondary market. The Principal Reduction Program allows a homeowner who is at least 25% upside down on their mortgage and has documented income which supports a debt-to-income ratio of 50% or less (based on the new lower monthly mortgage payment) to permanently eliminate their negative equity for a one-time fee of $1,595. This includes closing costs, attorney fees, appraisals, and even the new loan. The Principal Reduction Program takes approximately 60-90 days to complete and the homeowner ends up with a new loan at 90% of current market value. All negative equity is permanently eliminated and the homeowner realizes an instant 10% equity position at the end of the process. Sound too good to be true? When I first heard about it, I was as skeptical as you.

Here's how it works. Notes from upside down homeowners are grouped together in portfolios from around the country for a large scale purchase from the current lender. These portfolios of upside down mortgages are negotiated and purchased on the secondary market by the hedge fund at a steep discount to current market value. The hedge fund, now the new owner of the Note, immediately reduces the outstanding loan balance to 90% of market value and sells it off to an investor. The original lenders, often large nationwide banks, are reimbursed for 80% of the balance reduction amount by TARP funds and permanently remove a large group of potentially toxic assets from their balance sheets. The original lender realizes a large cash infusion and removes the high risk of these assets entering the costly foreclosure process in the future. It may sound too good to be true but in addition to removing all of their negative equity, the once upside down homeowner does not have any negative impact on their credit rating after completing the Principal Reduction Program. The old loan is noted on the homeowners credit report as "$0 balance: paid in full". The interest rate charged on the new loan is a 30-year fixed which is slightly above current market rates ranging from 6.25% to 7.25% depending on the homeowners credit score when entering the program. Even with this slightly higher interest rate, the monthly payments are almost always slashed due to the significant reduction in principal, often several hundred thousand dollars which is permanently eliminated from their outstanding mortgage balance.

The homeowner does not need to be late or behind on payments and admission into the Principal Reduction Program is not based on the homeowners credit rating. Rather it is based on the fact the homeowner is upside down on their mortgage and therefore at a much higher risk of default in the future combined with their documented ability to pay for the new mortgage payments.

How long this program will last is unknown, but for the time being there is finally a solution for underwater mortgage holders in an environment that has up to this point offered absolutely no options. For more information about the Principal Reduction Program visit www.PrincipalReduction.us

By: C Kartchner

www.PrincipalReduction.us

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