Saturday, March 27, 2010

Mortgage Plan Remodeled Again

¹²Mortgage Plan Remodeled Again

By James R. Hagerty and Nick Timiraos, Bloomberg News | 27 March 2010

The Obama administration said Friday it would step up help for borrowers who owe more than their homes are worth. Unemployed homeowners will get a few months of relief on their mortgages in a new government assistance plan to help stall more foreclosures, James Hagerty reports on the News Hub. But officials also tried to tamp down expectations for their latest revamp of the government's year-old foreclosure-prevention drive. Some of the adjustments face logistical hurdles and it could be months before the initiatives are in place.

Diana Farrell, a senior White House economic adviser, said the programs couldn't be expected to prevent the majority of expected foreclosures. "The purpose is to deal with just enough of the overhang… where we have a real chance of changing the dynamic," she said. The overhaul creates a much bigger role for the Federal Housing Administration, which will offer a new way for some underwater borrowers to refinance into a smaller loan. Previous efforts to refinance underwater borrowers have faced challenges[!?!] [[Why not just give them the houses?: normxxx]]

The FHA plan is targeted at investors who own mortgages that were bundled and sold by Wall Street. Under the plan, such mortgage holders would write down the principal of a first mortgage at least 10%. The loans would then be refinanced into FHA-insured mortgages. To qualify, homeowners must be current on their loan, occupy the home as a primary residence, fully document their income and have at least a 500 credit score.

For borrowers with second mortgages, total mortgage debt would have to be written down to a maximum of 115% of the home's current value. The government would pay the holder of the second lien, but their cooperation wasn't assured. Some mortgage investors have been clamoring for such a plan. "I would not overstate, by any stretch, expectations that this is going to be a huge program in the investor community," said FHA Commissioner David Stevens. He said it would appeal to investors who have an exposure to markets where home prices have plunged.

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The agency would take on more risk by refinancing underwater borrowers and that risk would grow as the program grows more successful. The administration said it would steer $14 billion in Troubled Asset Relief Program, or TARP, funds that had already been allocated for foreclosure prevention to cover costs. Meanwhile, the administration will now require banks that participate in the government's Home Affordable Modification Program, or HAMP, to consider writing down principal for eligible borrowers whose mortgage debt is more than 115% of the current value of their home. The principal would be reduced in stages over three years if the borrower keeps up on payments.

Lenders were to receive 10 to 21 cents of federal subsidies for every dollar of loan principal reduced, depending on the degree to which the borrower was underwater. (The White House will announce Friday an expansion of its foreclosure-prevention efforts to include reducing mortgage loan balances for some borrowers.) The administration said it would double the amount money it would pay to second-lien mortgage holders under an existing program.

Some second mortgages, which have been one major obstacle for short sales and modifications, are "worth effectively zero," said Michael Barr, an assistant Treasury secretary [[try telling that to the second mortgage holders: normxxx]]. The question, he added, was how much "nuisance money" was needed to satisfy the second-lien mortgage holder. The administration also unveiled a program to sharply reduce or even suspend mortgage payments for three to six months for unemployed borrowers to help them keep their homes while looking for a job.

Among borrowers already looking at the new options was Phillip E. Jones, a real-estate broker in Orange Park, Fla. Mr. Jones bought a five-bedroom home in 2006 for about $410,000 but figured the market value had dropped to around $250,000, well below his $350,000 of mortgage debt. He said his lender rejected his application for a HAMP loan modification on the ground that his retirement savings disqualified him for hardship assistance.

"I'll try again" for a refinance into an FHA-backed loan, Mr. Jones said, though he had become skeptical of government efforts to prod lenders into modifying loans. HAMP, he said, was "smoke and mirrors". So far, around 170,000 borrowers have received permanent modifications in the HAMP program, while another 835,000 are in a 'trial' stage.

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