The Principal Reduction Program

Stuck in an upside down mortgage with no other option? Upside down and a loan mod just doesn’t work?

Upside down, cannot qualify for a loan mod and don’t want the deficiency liability of a short sell?

Finally, there is a legitimate option to reduce principal and payment to either stay in your home or to walk away without having to short sell. This safe program provides the options without risk of ever being taken off title, damaging your credit or creating tax liabilities. If you fit the parameters of this program, this may be the solution you have been seeking.

The Principal Reduction Program - A multi-billion dollar hedge fund negotiates the discounted purchase of current and delinquent notes directly from the major lenders leaving the homeowner a new principal balance on the original loan of 90% of current appraised value.

This is a program that involves the discounted purchase of targeted mortgage notes from the major lenders by a specialized company that has the backing of a huge hedge fund. This is just substituting the lender and the loan servicer—the homeowner never comes off title. It works 99% percent of the time as long as the borrower meets the following qualifications:

1 – Upside down at least 25% on the 1^st. (20% is the actual cut off point.)

2 – Have a Debt-to-Income ratio of 50% or less (using the new, proposed payment)

3 – Must prove income (if self-employed, show bank statements.)

Details: A private company, that has been buying targeted notes from lenders since 2004, is now using the clout and financial backing of a multi-billion dollar hedge fund to take this program nationwide. The goal is to help the American homeowners, who are upside down on the mortgages, to get right side up by purchasing both good and bad notes from the major lenders at a discount and passing the reduction onto to the borrowers.

1. Reduction in principal balance to 90% of current market value
2. 30 year fixed loan program
3. Low fixed interest rates
4. Monthly Mortgage Payment reduced by 25%-50%
5. No Credit score needed to qualify
6. 10% instant equity
7. 60-90 day turnaround time
8. Never lose Title/Ownership of your home
9. Not a lease option program
10. No Tax repercussion

*Since the loss is a voluntary write off by the current mortgage company the homeowner will not have any negative impact nor adjustments to their credit profile.

Why would lenders sell? It is understandable why the lenders would want to dump non-performing notes, but why would they sell current or performing notes? The Federal Government has reduced the banks’ leverage of their assets in half and, in addition to this; the declining economy has reduced the value of their leveraged assets. These and other factors have created an incredible appetite for liquidity. The hedge fund takes advantage of the banks’ thirst for liquidity and desire to unload the toxic assets by negotiating the discounted purchase of both good and bad notes.

For homeowners that meet these requirements, their files are presented to the hedge fund that then negotiates the purchase of the note from the lender at a discount. The hedge won’t take the “bad” paper unless they get to buy some of the A paper as well. The hedge fund makes a profit from the blend of A and B paper--more on the bad and less on the good. The homeowner always remains on title and actually does nothing and takes no risk at all. The end result is that the new principal balance on the note is 90% of current appraised market value. Since this a transaction between the bank and the hedge fund, there is no affect to the credit score of the homeowner, nor is there a tax consequence.

Financing options: After the successful purchase of the note, there are a few financing options 1) on a conventional loan, if your FICO score is 700 and above, they may put you into a 3^rd party mortgage lender at competitive rates on 30-year note: 2) the hedge fund will carry back the note on a 30-year fixed at 3pts over Prime (currently 3.25%) or 6.25% 3) if FICO is under 700, the hedge fund can carry the note on a 30-year fixed at 7.25% with a Pre-Payment Penalty of 6 months interest (there is an issue with jumbo loans with this option).

Short Sell Avoidance option: Since the company , (and hedge fund) do not want to own homes, nor do they want to foreclose, they want to be sure that the borrower has the ability to pay the new payments. If you cannot financially qualify for this loan and you want to just walk away from the home with no strings attached or potential deficiency liability, there is another option. With a buyer lined up to purchase your home, we, or an investor, can put up the proposed amount in cash in escrow, buy the note from the hedge fund, and close on the sale with the new buyer. This releases you from the burden and all liability.

With any of these, you would have options give you the choices to stay and pay a much lower payment or to sell and walk away cleanly with no foreclosure, short sell or adverse credit history.

The Numbers: Once we obtain the note, we will refinance the note back to the client at 90% of the current market value. Assuming the 1^st mortgage is $500K and the current market appraisal comes in at $350K, the new principal balance would be reduced to $315K. The new payment would be (according to option 2) would around $1.940 not including taxes and insurance (impounds). There will be a 3-year pre-payment penalty of 6 months interest if you sell of re-finance—or about $10,000 but that is a small price to pay since they would have reduced your principal balance by at least $185K!

Cost of the program: The Company charges $1,595 up front to cover the hard costs they will incur on appraisals, credit/background checks, processing fees and title expenses. This is an all-inclusive fee that includes the above mentioned hard costs plus any closing costs on the 3^rd party mortgage. Once you submit your application and contract, and the company orders an appraisal, that appraisal comes in too high, they will order another one. If comes into too high as well, the file is declined and the balance of the fee is returned. If the second appraisal is lower, they will use that one. We have a documented 99% successful track record.

Frequently Asked Questions

What is a hedge fund and why are they buying the notes from the bank?

A hedge fund is an investment fund open to a limited range of investors that is permitted by regulators to undertake a wider range of investment and trading activities than other investment funds. As the name implies, hedge funds often seek to hedge some of the risks inherent in their investments using a variety of methods, most notably short selling and derivatives.

However, the term "hedge fund" has also come to be applied to certain funds that do not hedge their investments, and in particular to funds using short selling and other "hedging" methods to increase rather than reduce risk, with the expectation of increasing the return on their investment.

Hedge funds are typically open only to a limited range of professional or wealthy investors. The net asset value of a hedge fund can run into many billions of dollars, and the gross assets of the fund will usually be higher still due to leverage. Why would my bank sell my note at a reduce amount rather than foreclose on my property? When a package is submitted to the lender, it is submitted with many other property owners in your situation or worse.

We are offering the lender a way to get those “toxic assets” off their books without having to go through the foreclosure process and risk being even further in the hole. Keep in mind the average foreclosure costs appear to be about $70,000 for a $200,000 home. Additionally, you are impacted by losses in the tax base, impact to home prices, and increases in government services and funding to people who lose their homes. What are the terms of my new note? If your FICO credit score is over 700 your new interest rate is 3% over prime for 30 years fixed. If your credit score is less than 700 your new interest rate is 4% over prime for 30 years. The current prime rate as of Sept 30, 2009 is 3.25%

1. Q: Do I have to be late?
A: No. We can still help you if you are current.

2. Q: Do I have to have Good Credit?
A: No. We will work with anyone regardless of their payment history, or credit score.

3. Q: Can you help if I am in foreclosure?
A: Yes, Definitely. We recommend that you contact us immediately so we can expedite the process.

4. Q: Will this have a negative effect on my credit?
A: No. Since the loss is a voluntary write off by the current mortgage company the homeowner will not have any negative reporting recourse.

5. Q: How long does the process take?
A: 60-90 Days

6. Q: Can I enter the program if I have more than one Mortgage loan?
A: Yes.

7. Q: What type of loan will I receive?
A: A 30 year fixed rate mortgage.

8. Q: How much does it cost to get started?
A: One time Fee $1595.

9. Q: I have a jumbo loan, can you help homeowners in jumbo loans?
A: Yes, We consider Jumbo Loans, please call for more details.

10. Q: Can you do a FHA, VA, Freddie or Fannie Loan?
A: Yes.

11. Q: Can you help me out if I am in Bankruptcy?
A: Yes.

12. Q: What will my new loan be after everything is finished?
A: The new loan balance will be based at 90% of the homes Current Market Value.

13. Q: What will my new interest rate be?
A: You interest rate will be determine on whether or not a homeowner is a performing or non-performing Borrower.
All performing homeowners who qualify for traditional financing will be refinanced with current market interest rates.
All Non-Performing borrowers will receive interest rates as followed:

700 Credit Score or better = prime + 3 or (Currently 6.25%)

699 or below Credit Score = prime + 4 or (Currently 7.25%)

14. Q: Is there a prepayment penalty?
A: Yes, there is a hard prepayment penalty for 36 months.

15: Q: How Much Money was allocated for this program?
A: $5 billion to start.

16. Q: How much will my monthly mortgage payment be?
A: We usually see our homeowner’s monthly mortgage payments reduced by 25%-50%.

17. Q: Will I have to sign my house over to you?
A: No, You will never lose title/ownership of your home.

18. Q: Do I still have to make my mortgage payments?
A: Yes, We never advise to the homeowner to miss their mortgage payments.

19. Q: I am a business owner and I cannot prove enough income on my taxes but I make good money, can you help me?
A: Yes, We need to see your last 12 months business and/or personal bank statements.

20: Q: I have an Investment property, do I still qualify?
A: Yes, we will consider an investment property. Please call for details.

21: Q: Can I refinance my loan whenever I want?
3 year pre-payment on in house financing only.

22: Q: Do I still own the home or is someone else on title?
A: You will remain on title and the note. This is a private money loan and the hedge fund has no interest in owning your home.

23: Q: I understood from the conversation that we would be able to work with any type of property. Are there any property type restrictions?
A: For right now it is limited to SFR...condos are acceptable as well

24: Q: I also understood that once the note is renegotiated the client will end up with at least a 10% equity position in the property. Right now 10% down financing is difficult for most to refinance conventionally, especially with the current guidelines for investment property. Is there any latitude on this?
A: No its 90% of current market value, but this is all done by our program and there is already a relationship with a lender that will conventionally finance the deals with 90% combined loan to value ratio, (cltv).

25: Q: Are there any state restrictions?
A: No state restrictions

26: Q: Is payment always done with a cashier’s check?
A: Yes.... The cost to the homeowner is $1595 payable directly to the hedge fund to cover the costs of appraisal, title work, credit checks, background check etc.

27: Q: Can other people be on the note to help the DTI?
A: YES.....but they must pre-qualified prior to being put on title

28: Q: What is the 3 year prepay (3%,2%,etc.)
A: 6 months interest whatever their rate is 3 or 4% depending their FICO

29: Q: Is the private note fixed?
A: 30 yr fixed