New adjustments made to the Home Affordable Modification Program (HAMP) and to the Federal Housing Administration (FHA) programs will expand flexibility for mortgage servicers and originators to assist more unemployed homeowners and to help more people who owe more on their mortgage than their home is worth because their local markets saw large declines in home values.
The new FHA refinance options will provide more opportunities for lenders to restructure loans for some families who owe more than their home is worth. This is a voluntary program for lenders and homeowners. For borrowers to be eligible for an FHA refinancing, they must be current on their mortgage. This rewards responsible homeowners and creates stabilizing incentives in the housing market.
These changes will help toward the goal of stabilizing housing markets by offering a second chance to up to three to four million struggling homeowners through the end of 2012.
Costs will be shared between the private sector and the federal government. The federal cost of these changes will be funded through the $50 billion allocation for housing programs under the Troubled Asset Relief Program.
The new flexibilities for the modification initiative announced today target homeowners that are eligible for modifications under HAMP. These homeoweners must, for example: live in an owner occupied principal residence, have a mortgage balance less than $729,750, owe monthly mortgage payments that are not affordable (greater than 31% of their income) and demonstrate a financial hardship.
“Today’s initiative, under which the Federal Housing Administration would insure mortgages in return for relief for struggling homeowners, has considerable merit," said Tom Deutsch, executive director of the American Securitization Forum. "Institutional investors are very supportive of principal write-downs when they lead to a refinancing such as today’s proposal involving the FHA.”