The Treasury Department has unveiled its loan modification insurance program to protect investors from declines in house prices.
The $10 billion Home Price Decline Protection program will "offset any incremental collateral loss on modifications that do not succeed" during the first two years, Treasury said. The new program is aimed at giving investors and servicers participating in the administration's Home Affordable Modification Program an incentive to modify loans in markets with declining house values.
"Home price decline protection can help homeowners who may not have been reached otherwise," Treasury assistant secretary Michael Barr said.
The amount of the HPDP "incentive" payment is determined at the time the servicer runs the net present value test to qualify homeowners for a loan modification trial. It is based on expected price declines over the next year and other factors. Treasury is kicking off the incentive payment program for HAMP modifications with NPV test dates on or after Sept. 1.
"Mortgage loans that are owned or guaranteed by Fannie Mae and Freddie Mac are not eligible for HPDP incentive compensation," according to a Treasury directive.