What is the Principal Reduction Act?PRINCIPAL REDUCTION OF MORTGAGES OWNED OR GUARANTEED BY FANNIE MAE AND FREDDIE MAC.
IN GENERAL. The Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation shall each carry out a program under this section to provide for the reduction of the outstanding principal balances on qualified mortgages on single-family housing owned or guaranteed by such enterprise through reduction of such principal balances, in accordance with this section and policies and procedures that the Director of the Federal Housing Finance Agency shall establish.
REQUIREMENT TO REDUCE PRINCIPAL PURSUANT TO REQUEST. Each such program shall require the reduction of principal on a qualified mortgage upon the request of the mortgagor made to the enterprise and a determination by the enterprise that the mortgage is a qualified mortgage.
QUALIFIED MORTGAGE. For purposes of this section, the term 'qualified mortgage' means a mortgage, without regard to whether the mortgagor (Borrower) is current or in default on payments due under the mortgage, that:
(1) is an existing first mortgage that was made for purchase of, or refinancing another first mortgage on, a one-to-four family dwelling, including a condominium or a share in a cooperative ownership housing association, that is occupied by the mortgagor as the principal residence of the mortgagor.
(2) is owned or guaranteed by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation.
(3) has a principal balance that exceeds the value of the dwelling subject to the mortgage by more than 20 percent.
PRINCIPAL REDUCTION ON QUALIFIED MORTGAGES. To reduce principal on a qualified mortgage under a program of an enterprise under this section, the enterprise shall reduce the principal for the qualified mortgage to an amount that results in a loan-to-value ratio for the mortgage of not more than 90 percent.
STREAMLINED PROCESS. To the maximum extent possible, each enterprise shall:
(1) limit the amount of paperwork required from a mortgagor to receive a principal reduction under the program established under this section by the enterprise; and
(2) endeavor to complete the principal reduction for a qualified mortgage pursuant to the mortgagor’s request not later than 30 days after receiving such request from the mortgagor.
Normally, you would be taxed by the IRS for the amount “forgiven” by your lender. Now, with the Principal Reduction Act, you may not owe the IRS anything for the amount forgiven!
Do you Qualify