Principal Reduction Alternative Program (PRA)

The Principal Reduction Program (PRA) is a deferred principal reduction program that allows a borrower to earn principal reduction over a three-year period by successfully making payments in accordance with the modified loan terms. If the loan is modified pursuant to PRA, the principal reduction amount should be initially treated as non-interest bearing principal forbearance (PRA Forbearance Amount). The PRA Forbearance Amount is separate and exclusive of any other forbearance that may be offered in conjunction with a HAMP modification.

If the borrower is in good standing on the first, second and third anniversaries of the trial period effective date, the servicer must reduce the UPB of the loan on each anniversary date in installments equal to one-third of the initial PRA Forbearance Amount.  A borrower is in good standing as long as they are not three months delinquent in making the monthly modified loan payments.

Under the Principal Reduction Alternative (PRA) guidelines, servicers are encouraged to offer relief to borrowers whose homes are worth significantly less than the amounts owed under their first lien mortgage loans. Under PRA, servicers are required to evaluate the benefit of a principal reduction for every HAMP eligible loan with “high negative equity”, and are encouraged to offer principal reduction whenever the net present value (NPV) of a HAMP modification using PRA is greater than the NPV without a principal reduction. 

If a servicer receives a written request from a borrower (or an authorized representative of the borrower) related to a principal reduction, the servicer must respond to the request within 30 days of receipt of the request. The response, when applicable, must include the reason(s) that a principal reduction was not offered to the borrower.