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Since the beginning of the recession in 2008, loan modification programs have been available primarily through the Home Affordable Mortgage Program (HAMP). If a homeowner was unable to quality, the individual mortgage company could offer its own programs.

Normally, the goal of a modification is a lower monthly payment through reduced interest rates, elongating the term of the loan, principal balance reduction, or a combination of all. Our firm has helped clients since the downturn’s beginning with modifications. We have seen a tremendous amount succeed through the lowered interest rates and/or lengthening the loan. Seldom, however, did lenders reduce principal balances. But now they are. Over several months, we have seen an uptick in this remedy, sometimes several thousand dollars or even tens of thousands in reduced balance. We have seen eliminations of entire second mortgage balances.

You may have heard of the settlement five banks reached with the federal government, called the New National Mortgage Settlement. In February 2012, the federal government and 49 states (Oklahoma did not participate) entered into a settlement with the country’s five largest loan lenders: Ally, Bank of America, Citi Bank, JPMorgan Chase, and Wells Fargo. In the settlement, $25 billion is set aside for mortgage relief to underwater homeowners, $17 billion of which for loan modifications and principal reductions.

As we watch the effect of this settlement unfold, we can only assume it will further benefit the homeowners who qualify though they must be borrowers of the settling banks or servicers. In a later Blog entry, focus on eligibility will be discussed.

–Contributed by Michael P. Dickson