The Obama administration detailed new efforts to help bring relief to responsible homeowners under the Making Home Affordable Program.
These measures include bringing greater affordability to homeowners by lowering payments on their second mortgages as well as other measures to help underwater borrowers stay in their homes.
The Second Lien Program will work together with first lien modifications that are offered under the Home Affordable Modification Program to give a comprehensive affordability solution to borrowers who are struggling.
According to a release posted on the Department of the Treasury Web site, second mortgages could create considerable challenges in helping borrowers avoid foreclosure, even after a first lien has been modified. Up to 50% of at-risk mortgages have second liens, and many properties in foreclosure have more than one lien.
The release said that under the Second Lien Program, when a Home Affordable Modification is started on a first lien, servicers that are part of the Second Lien Program will automatically reduce payments on the associated second lien based on a pre-set protocol.
As an alternative measure, those servicers will have the option to extinguish the second lien in return for a lump sum payment. The lump sum payment will be arrived at through a pre-set formula that will be determined by Treasury, allowing servicers to target principal extinguishment to the borrowers where extinguishment is deemed most appropriate.
The administration has also announced steps to incorporate the Federal Housing Administration's (FHA) Hope for Homeowners into Making Home Affordable.
Hope for Homeowners requires the holder of the mortgage to accept a payoff below the current market value of the home. This allows the borrower to refinance into a new FHA-guaranteed loan. Refinancing into a new loan below the home's market value takes a borrower from a position of being underwater to having equity in their home. By increasing a homeowner's equity in the home, a better outcome for borrowers who quality can be seen under Hope for Homeowners program.
Under the changes announced today and, when evaluating borrowers for a Home Affordable Modification, servicers will have to determine eligibility for a Hope for Homeowners refinancing. Where Hope for Homeowners proves to be viable, the servicer is required to offer this option to the borrower.
To ensure proper alignment of incentives, servicers and lenders will receive pay-for-success payments for Hope for Homeowners refinancings similar to those offered for Home Affordable Modifications. These added supports are designed to work in tandem and take effect with the improved and expanded program under consideration by Congress. The administration supports legislation to strengthen Hope for Homeowners so that it can function effectively as an integral part of the Making Home Affordable Program.
Making Home Affordable, which is a comprehensive plan to stabilize the U.S. housing market, was first announced by the Administration on Feb. 18. The three-part program uses aggressive measures to support low mortgage rates. This is done by strengthening confidence in Fannie Mae and Freddie Mac; a Home Affordable Refinance Program, which will offer new access to refinancing for up to four to five million homeowners; as well as a Home Affordable Modification Program, which will lessen monthly payments on existing first lien mortgages for up to three to four million at-risk homeowners.
The administration also announced today a new effort to engage directly with homeowners through the MakingHomeAffordable.gov. Starting today, homeowners could submit individual questions through the Web site to the administration's housing team. Members of the Treasury and Department of Housing and Urban Development staffs will periodically select commonly asked questions and post responses on MakingHomeAffordable.gov.
"With these latest program details, we're offering even more opportunities for borrowers to make their homes more affordable under the Administration's housing plan," said Treasury Secretary Tim Geithner. "Ensuring that responsible homeowners can afford to stay in their homes is critical to stabilizing the housing market, which is in turn critical to stabilizing our financial system overall. Every step we take forward is done with that imperative in mind."
"Today's announcements will make it easier for borrowers to modify or refinance their loans under FHA's Hope for Homeowners program," said HUD Secretary Shaun Donovan. "We encourage Congress to enact the necessary legislative changes to make the Hope for Homeowners program an integral part of the Making Home Affordable Program."