This is an introduction to oxidation-reduction reactions, also known as redox reactions. Learn what redox reactions are and get examples.
What is a 'Principal Reduction' A principal reduction is a decrease granted toward the principal owed on a loan, typically a mortgage. A principal reduction can be obtained to decrease the outstanding principal balance on a loan and provide relief for a borrower. Principal reduction is normally deployed to prevent foreclosures on properties, which may be more costly to than a reduced principal owed to them. Principal reductions were commonly offered following the 2008 financial crisis to help support distressed borrowers. • • • • BREAKING DOWN 'Principal Reduction' Principal reductions on mortgage loans were heavily issued from 2009 to 2016 when the government sponsored the Home Affordable Modification Program (HAMP). HAMP was launched by the government to help support the mortgage industry following the 2008 financial crisis.
Loose standards for credit products and specifically loans broadened the scope of lending to include a wider range of borrowers in the subprime category. These borrowers subsequently reported high default rates and significant challenges in making timely payments.
Due to effects on the real estate industry many borrowers also saw their mortgages incur negative equity with loan values higher than available market resale values. HAMP was instituted to help make homeownership more affordable across the country by providing a framework that lenders could use for offering principal reductions and principal reduction programs. Home Affordable Modification Program was part of a broad effort instituted by the government to help provide for a recovery from economic effects caused by the 2008 financial crisis.