The nation’s mega servicers are increasing their use of principal reductions in modifying loans as they fulfill obligations under the $25 billion robo-signing settlement with the state attorneys general and federal agencies, according to new figures released by the Treasury Department.  

A new Home Affordable Modification Program report released by Treasury found that roughly 70% of “eligible non-GSE loans entering HAMP in recent months have received some form of principal reduction with their modification.”

Treasury’s Principal Reduction Alternative (PRA) program pays servicers an incentive fee for writing down the principal amount of mortgages with LTVs north of 115%.

The AG settlement has increased the “volume of non-incented principal forgiveness outside the constructs of the PRA program,” Treasury said.

In April, servicers used the PRA program to reach the 60% mark. It appears that the nation’s five largest servicers – Wells Fargo, Bank of America (BofA), and JPMorgan Chase among them -- employed proprietary principal reductions to push the percentage up to 70%.

The HAMP report shows that nearly 5,000 PRA trial modifications were started in April. Servicers have engaged in 17,000 active PRA trial modifications and 54,760 active permanent PRA modifications.

The median principal amount reduced in a PRA modification is $68,270 or 31% of the loan amount.

Overall, HAMP servicers started 19,360 trial modifications in the month of April and completed 15,170 permanent modifications.

The GSE regulator does not permit principal reductions on Fannie Mae and Freddie Mac loans.

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