The Administration announced adjustments to the Home Affordable Modification Program (HAMP) and to the Federal Housing Administration (FHA) programs after admitting that "Servicers were slow to implement HAMP, resulting in a slow start for the program."

The program modifications 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 FHA refinance options being announced today may 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.  The population eligible for a FHA refinance must be current on their mortgage. 

No specific details or underwriting guidelines are available, nor has a timeline for implementation been announced.  See below:

http://www.treasury.gov/press/releases/tg614.htm

March 26, 2010
TG-614

Housing Program Enhancements Offer Additional Options for Struggling Homeowners

Refinements to Existing Administration Programs Designed to Help Unemployed, Underwater Borrowers While Helping Administration Meet its Goals

WASHINGTON - Today, as part of its ongoing commitment to continuously improve housing relief efforts, the Administration announced adjustments to the Home Affordable Modification Program (HAMP) and to the Federal Housing Administration (FHA) programs.  These program adjustments will better assist responsible homeowners who have been affected by the economic crisis through no fault of their own.  The program modifications 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.  These changes will help the Administration meet its goal of stabilizing housing markets by offering a second chance to up to 3 to 4 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 (TARP). 

Housing Policy Overview

The Administration's goal is to promote stability for both the housing market and homeowners. To meet these objectives, the Administration has developed a comprehensive approach using state and local housing agency initiatives, tax credits for homebuyers, neighborhood stabilization and community development programs, mortgage modifications and refinancing, and support for Fannie Mae and Freddie Mac.  The Administration's efforts for homeowners have focused on giving responsible households an opportunity to remain in their homes when possible while they get back up on their feet, or to relocate to a more sustainable living situation. Today, mortgage rates are at record lows and, thanks in large part to these programs, more than four million homeowners have refinanced their mortgages to more affordable levels helping to save more than $7 billion annually, more than one million are saving an average of over $500 per month through the Administration's modification program, home equity increased by more than $12,000 for the average homeowner in the last three quarters last year and the economy is growing.

Even with this success, we continue to see challenges.  Servicers were slow to implement HAMP, resulting in a slow start for the program.  Recent improvements in the program have accelerated the pace of modifications, and the adjustments announced today will improve performance.  But our strategy to address the crisis must evolve because our challenges have also evolved.

Our housing initiatives must balance the need to help responsible homeowners struggling to stay in their homes, with the recognition that we cannot and should not help everyone. The President has said: "We can't stop every foreclosure." And in fact, we can't maintain the balance described above if we assist every borrower.  For example, investors and speculators should not be protected under our efforts, nor should Americans living in million dollar homes or defaulters on vacation homes. Some people simply will not be able to afford to stay in their homes because they bought more than they could afford.  Instead, the Administration must focus on providing responsible homeowners opportunities to obtain a modification or to refinance and prevent avoidable foreclosures and, when necessary, must facilitate the transition to a more sustainable housing situation. The adjustments announced today are tailored to accomplish these goals by helping a targeted group of borrowers.

Eligible homeowners for modifications under HAMP 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 percent of their income) and demonstrate a financial hardship.  The new flexibilities for the modification initiative announced today continue to target this group of homeowners.

The FHA refinance options being announced today 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.  The population eligible for a FHA refinance must be current on their mortgage.  This rewards responsible homeowners and creates stabilizing incentives in the housing market.

Taken together, the Administration's broad housing initiatives and the new flexibilities announced today will offer a second chance to millions of responsible, middle-class American families struggling to stay in their homes and will help to stabilize our households, neighborhoods and communities. 

Background on Housing Program Initiatives to Date

The Administration has taken a broad set of actions to stabilize the housing market and help American homeowners.  These efforts are having an impact on our housing markets - we are seeing signs of stabilization.  Looking back to over a year ago - stress in the financial system had severely reduced the supply of mortgage credit, limiting the ability of Americans to buy homes or refinance mortgages.  Millions of responsible families who had made their monthly payments had fulfilled their obligations saw their property values fall, and found themselves unable to refinance at lower mortgage rates.

In February 2009, less than one month after taking office, President Obama announced the Homeowner Affordability and Stability Plan.  As part of this plan and through other housing initiatives, the Administration has taken the following actions to strengthen the housing market:

Actions Supporting Market Stability and Access to Affordable Mortgage Credit

·         Provided strong support to Fannie Mae and Freddie Mac to ensure continued access to affordable mortgage credit across the market; 

·         Together, Treasury and the Federal Reserve have purchased more than $1.4 trillion in agency mortgage backed securities, which have helped keep mortgage rates at historic lows, allowing homeowners to access credit to purchase new homes and refinance into more affordable monthly payments;  and

·         The FHA has played an important counter-cyclical role, providing liquidity for housing purchases at a time when private lending has declined.

Actions Helping Homeowners Purchase Homes, Refinance and Modify Mortgages to More Affordable Payments, Prevent Foreclosures and Stabilize Communities

·         Launched a modification initiative to help homeowners reduce mortgage payments to affordable levels and to prevent avoidable foreclosures;

·         Supported expanding the limits for loans guaranteed by Fannie Mae, Freddie Mac, and FHA from previous limits up to $625,500 per loan to $729,750;

·         Expanded refinancing flexibilities for the Fannie Mae and Freddie Mac loans, particularly for borrowers with negative equity, to allow more Americans to refinance;

·         Launched a $23.5 billion Housing Finance Agencies Initiative which is helping more than 90 state and local housing finance agencies across 49 states provide sustainable homeownership and rental resources for American families;

·         Supported the First Time Homebuyer Tax Credit, which has helped hundreds of thousands of responsible Americans purchase homes. 

·         Through the Recovery Act is providing over $5 billion in support for affordable rental housing through low income housing tax credit programs and $2 billion in support for the Neighborhood Stabilization Program to restore neighborhoods hardest hit by concentrated foreclosures; and  

·         On February 19, 2010, the Administration announced the $1.5 billion HFA Hardest Hit Fund for housing finance agencies in the nation's hardest hit housing markets to design innovative, locally targeted foreclosure prevention programs.

Historically low mortgage rates along with expanded refinancing flexibilities for Fannie Mae and Freddie Mac loans have helped more than four million American homeowners with Fannie Mae and Freddie Mac loans to refinance, saving an estimated $150 per month on average and more than $7 billion in total.    HAMP has provided more than 1 million struggling homeowners a second chance to stay in their homes - with each homeowner in a modification saving more than $500 per month on average. 

Together, these initiatives are having an impact - strengthening the housing market, helping responsible homeowners prevent avoidable foreclosures and rebuilding communities and neighborhoods.  Today mortgage rates remain at historic lows - the primary interest rate is now about 5 percent, lower than at any time in the three decades before the crisis.  We are also seeing encouraging signs in housing indicators - home prices and the pace of home sales have stabilized in recent months.

March 25 (Bloomberg) -- More than half of U.S. borrowers who received loan modifications on delinquent mortgages defaulted again after nine months, according to a federal report.

The re-default rate of loans modified in the first quarter of 2009 was 51.5 percent by the end of the year, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a joint report today. The figure, which measures payments at least 30 days late, climbed to 57.9 percent for changes made in the prior 12 months.

U.S. homeowners are struggling to make payments as depressed housing prices leave them owing more than their properties are worth. About 24 percent of properties with a mortgage were underwater in the fourth quarter, First American CoreLogic said last month. The median price of a U.S. home was $165,100 in February, down 28 percent from its peak in July 2006, according to the National Association of Realtors.

Modifications are "clearly not working well and it's not a surprise," said Sam Khater, a senior economist at First American CoreLogic in Tysons Corner, Virginia. "It's pointless to rewrite these loans because they're underwater."

The number of homes with mortgage payments at least 60 days late climbed 2.39 million in the fourth quarter, up 13.1 percent from the prior three months and 49.6 percent from the year earlier period, the quarterly Mortgage Metrics report said.

Obama Program

President Barack Obama's administration is pressuring lenders to alter loans to reduce the number of properties lost to foreclosure. About 4.5 million foreclosures filings are expected in 2010, according to RealtyTrac Inc., an Irvine, California-based seller of default data.

A government watchdog report released today criticized the government's main foreclosure prevention effort, the Home Affordable Modification Program, or HAMP, for "spreading out the foreclosure crisis" over several years by failing to help enough troubled borrowers.

"The program will not be a long-term success if large amounts of borrowers simply re-default and end up facing foreclosure anyway," said the report by the Special Inspector General for the Troubled Asset Relief Program, prepared for a Congressional hearing today.

Assistant Treasury Secretary Herb Allison defended the program at the Congressional hearing, saying it has shown signs of stabilizing the housing market.

Before HAMP

The Mortgage Metrics data are based mostly on modifications made before HAMP, Joe Evers, deputy for large bank supervision at the Comptroller of the Currency, said in a phone interview today. Permanent loan changes under the government program accounted for only 21,000 of the total 594,000 modification plans initiated during the fourth quarter of 2009, making it too soon to evaluate the effectiveness of that plan, Evers said.

There were 168,708 delinquent loans permanently modified under HAMP as of the end of February, according to a Treasury Department report March 12.

Borrowers were more likely to default when their monthly payments aren't reduced enough in modifications to make staying in a home affordable, Evers said.

"Our data show that when you reduce payments by 20 percent or more you have a tendency for lower re-default rates," he said from Washington.

Bank Modifications

The Mortgage Metrics report tracks 34 million mortgages with an outstanding balance of $6 trillion and is based on data from nine national banks and three thrifts. The data represent more than 64 percent of all first-lien mortgages.

Modified loans in the portfolio of banks -- as opposed to loans owned by investors or government-sponsored enterprises such as Fannie Mae and Freddie Mac -- had the best record of avoiding re-default, the Mortgage Metrics report said.

The banks are free to design modification plans for individual borrowers, Bruce Krueger, a mortgage banking expert with the Office of the Comptroller, said in a phone interview. The HAMP program requires lenders to follow a path of concessions to modify loans, beginning with interest rate reductions, extended loan terms and principal forebearance.

"It's a very rigid process," Krueger said of the HAMP program. "If the loan is on the bank's books itself, the servicer can do whatever the bank might allow."

To contact the reporter on this story: John Gittelsohn in New York at johngitt@bloomberg.net.