Government Expansion of Foreclosure Prevention

Government Expansion of Foreclosure Prevention:


Second Liens and Hope for Homeowners Modified
The President said this past week that government is expanding its foreclosure prevention program to cover second mortgages and to direct more troubled borrowers to the Hope for Homeowners program. Much like the rest of the program recently announced however, we will withhold judgment until results start being achieved.
The president's current $75 billion program has gotten off to a slow start. Loan servicers only recently started taking applications and many delinquent borrowers have complained about not being able to qualify for the program.
The administration is now seeking to address some of the concerns by changing the original modification plan, which calls for adjusting eligible borrowers' loans so monthly payments are no more than 31% of pre-tax income.
The main issue with the current program for many borrowers is that up to half of at-risk borrowers have second liens, according to recent government reports.
Under the administration's new program, the interest rate on second mortgages will be reduced to 1% on loans where payments cover interest and principal and to 2% for interest-only loans. The government will subsidize the rate reduction, with the money going to the mortgage investor.
The servicers will be paid $500 for each modification and an additional $250 annually for three years if the borrower stays current. Borrowers can receive up to $250 per year for five years to pay down their first mortgage.
In addition, investors can also receive a payment in exchange for extinguishing the second lien. They would receive 3 cents on the dollar for loans more than 180 days delinquent and between 4 cents and 12 cents for less delinquent loans, depending on the borrowers' debt levels.
Servicers who join the new program must modify second loans when a borrower's first mortgage is adjusted. It will likely take a month to implement is the information being presented.
In addition, the administration said it is now requiring servicers to offer troubled borrowers access to Hope for Homeowners as a modification option if they qualify.
Expanding Hope for Homeowners would address one of the major holes in the original Obama foreclosure prevention plan. It helps homeowners whose homes are now worth far less than their mortgages.
Servicers would now have to reduce the principal to 93% of the home's value. The change would also reduce the program's high fees, which turned off many troubled borrowers.
As an incentive to participate, servicers will be paid $2,500 for each refinancing, while lenders who originate the new loans will receive up to $1,000 a year for three years, as long as the loan remains current.
These plans are all steps in the right direction to try and help additional borrowers who have not had results with the current initiatives. How effective they will be is still yet to be determined.
Second Liens and Hope for Homeowners Modified
The President said this past week that government is expanding its foreclosure prevention program to cover second mortgages and to direct more troubled borrowers to the Hope for Homeowners program. Much like the rest of the program recently announced however, we will withhold judgment until results start being achieved.
The president's current $75 billion program has gotten off to a slow start. Loan servicers only recently started taking applications and many delinquent borrowers have complained about not being able to qualify for the program.
The administration is now seeking to address some of the concerns by changing the original modification plan, which calls for adjusting eligible borrowers' loans so monthly payments are no more than 31% of pre-tax income.
The main issue with the current program for many borrowers is that up to half of at-risk borrowers have second liens, according to recent government reports.
Under the administration's new program, the interest rate on second mortgages will be reduced to 1% on loans where payments cover interest and principal and to 2% for interest-only loans. The government will subsidize the rate reduction, with the money going to the mortgage investor.
The servicers will be paid $500 for each modification and an additional $250 annually for three years if the borrower stays current. Borrowers can receive up to $250 per year for five years to pay down their first mortgage.
In addition, investors can also receive a payment in exchange for extinguishing the second lien. They would receive 3 cents on the dollar for loans more than 180 days delinquent and between 4 cents and 12 cents for less delinquent loans, depending on the borrowers' debt levels.
Servicers who join the new program must modify second loans when a borrower's first mortgage is adjusted. It will likely take a month to implement is the information being presented.
In addition, the administration said it is now requiring servicers to offer troubled borrowers access to Hope for Homeowners as a modification option if they qualify.
Expanding Hope for Homeowners would address one of the major holes in the original Obama foreclosure prevention plan. It helps homeowners whose homes are now worth far less than their mortgages.
Servicers would now have to reduce the principal to 93% of the home's value. The change would also reduce the program's high fees, which turned off many troubled borrowers.
As an incentive to participate, servicers will be paid $2,500 for each refinancing, while lenders who originate the new loans will receive up to $1,000 a year for three years, as long as the loan remains current.
These plans are all steps in the right direction to try and help additional borrowers who have not had results with the current initiatives. How effective they will be is still yet to be determined.