It seems that some of the rumors regarding the mysterious so called  “principal reduction program”  are verified and true. There is some  confirmation of the speculation that a new Principal Reduction Program is in the works that will work in tandem with public mortgage portfolio holders (i.e. the banks) to use Government TARP funds to reduce homeowner’s principal mortgage balance to current market value. The banks will be getting most of their loss recouped by the TARP funds and getting non-performing assets of their books. The PRP program steps in with their private funds, warehouses the loans, then works with the banks to reclaim the TARP funds. Fannie Mae is rumored to be on board, and the Big Four (Wells, BOA, Citi & Chase) are already participating.

For those who aren’t familiar, the principal reduction program (Known as “P.R.P” for those in the know) helps to reduce a homeowner’s principal mortgage balance (What they still owe on their mortgage) if they owe more than their home is worth. The principal reduction is to current market value, but no word of how that is determined. Assuming a large enough principal reduction the new monthly payment is substantially reduced as well.

No word about the scope and scale of the principal reduction program either, but on a large enough scale (after all there is a few HUNDRED billion dollars laying around in the TARP funds thanks to George and Barack, so it is plausible) the economic impact has a chance to be huge. Imagine the consumer spending index and consumer confidence if enough people had hundreds of more dollars a month of disposable income, as well as the yoke of being underwater being lifted from the fragile psyche of today’s homeowner.  

One would assume that we will be hearing more about principal reduction progams in short order. If it can be done, what an all around victory that would be. We need one.