Government Refinance Assistance

Here are the links to the recently released HARP 2.0 guidelines.

https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2011/sel1112.pdf
http://www.freddiemac.com/sell/guide/bulletins/pdf/bll1122.pdf

In short, here are the changes these guidelines describe:

- Starting December 1, 2011 authorized lenders were able to begin the loan application process for borrowers who have Fannie/Freddie mortgages with a current loan to value greater than 125%. HOWEVER those HARP 2.0 loans cannot be approved until March 2012 at the soonest because the Fannie/Freddie approval software will not be updated until then. So the soonest a HARP 2.0 loan with an LTV of more than 125% could actually close is probably April of 2012.

- For Freddie Mac loans, if the first mortgage is less than 80% of the value the home the first and second mortgage combined cannot be more than 105% of the current value of the home. (There will probably be price breaks for these loans though).

- There is apparently no change to the eligibility dates so people who got their current Fannie/Freddie loan after May of 2009 appear to not be eligible for HARP 2.0 still.

- There is no mention of changes to the mortgage insurance rules. The official guidelines of HARP 1.0 allowed for MI to transfer already but we do not know of any authorized lenders or MI companies that allowed that. We will have to wait and see if there is more incentive for lenders and MI companies to allow it with the new program.

The other questions yet to be answered over the coming months are:

1. How many authorized lenders will participate in the HARP 2.0 program? There are no requirements for lenders to participate.
2. What will the pricing be for these high LTV HARP 2.0 loan? (Probably significantly worse than loans with lower LTV’s)

So while these guidelines shed some light on the new program there are a lot of questions still to be answered. Stay tuned.

Contact us in the sidebar to learn more about which government-backed refinance programs might work for your family.

Fannie Mae reportedly has removed its “ability to pay” requirements from the HARP 2.0 guidelines. That means that families that have suffered from reduced income over the last few years might be able to qualify for the HARP 2.0 program. The program will still require no recent 30 day late payments on mortgages but the income qualifying requirement that tripped up so many people may be going away. This change is especially good news for borrowers who are self employed and have had trouble proving income in recent years. Here is an excerpt from a recent HousingWire article on the subject:

Lenders are no longer required to determine a borrower’s ability to repay a loan when underwriting mortgages for inclusion in Fannie Mae’s HARP 2.0 refinancing channel.

Barclays Capital made that conclusion in its securitized products research report Wednesday.

Barclays said Fannie Mae is adjusting its seller guidelines for HARP 2.0 after discovering the “borrower ability to pay clause” is preventing a large chunk of underwater mortgages from entering the program.

Under the changes, the ability-to-pay clause is no longer considered an underwriting requirement for Fannie’s HARP 2.0 program. Instead, Fannie Mae now stipulates that no debt-to-income calculation is required for these refinancings as long as the borrower’s payment does not increase by more than 20%, according to Barclays Capital.

While the HARP 2.0 program won’t be fully operational for a month or two please contact us in the sidebar now to see if you can qualify for it or another government-backed refinance program.

Beginning on Thursday December 1, 2011 applications for the HARP 2.0 program can technically be started. We say “technically” because as of now no authorized lender has implemented the program.

As we have discussed in the past, the HARP 2.0 program only applies to loans that are currently backed (invested in) by Fannie Mae or Freddie Mac. In addition the Fannie/Freddie loan must have been funded prior to May of 2009 to qualify for the HARP program. For the millions of loans that meet those requirements the HARP 2.0 programs is designed to allow homeowners to refinance to a lower rate without having to add private mortgage insurance (PMI) even when the loan is more that 80% of the current value of the home. The HARP 1.0 program allowed borrowers to refinance up to 125% of the current value of the home but the HARP 2.0 will do away with that 125% limit. In addition the HARP 2.0 will reportedly be available to borrowers who are currently paying PMI on their Fannie/Freddie loan.

Fannie and Freddie have announced that they will not have their underwriting software updated until March of 2012. As a result the bulk of the HARP 2.0 loans will not be able to be closed until then. What remains to be seen is if some lenders will be willing to manually underwrite HARP 2.0 loans before then. We will monitor the situation and report on any announcements regarding that here.

In the meantime we recommend you fill in the contact form in the sidebar to see which government-backed refinance programs apply to your situation.

The details of the new changes to the HARP program are reportedly going to be released on or before Tuesday November 15th. The release of the operational details is a crucial step in the roll out of the so-called HARP 2.0 program. However the program will probably not be functional on the ground level for several weeks after that.

Please note that the federal government does not lend directly to consumers with this program. Rather the HARP program is outsourced through authorized lenders so the actual implementation of the new program requires those lenders to be ready to originate and fund loans under the new program. Fully implementing new programs like this generally takes weeks or even months.

Contact us in the sidebar to learn if you are a candidate for the HARP 2.0 program or other government-backed refinance programs and to be connected with an authorized lender.

Widely anticipated changes to the Home Affordable Refinance Program (HARP) were announced this morning. The updates include several but not all of the changes most borrowers have been hoping for. Among the changes are the following:

1. There is no longer a 125% loan to value limit to the program. Going forward HARP loans can theoretically work for any loan backed by Fannie Mae or Freddie Mac regardless of how underwater the home is.

2. A full appraisal will not be required in all cases. Reports are that in some cases an automatic valuation system may be used.

3. Mortgage insurance providers have reportedly agreed to automatically transfer mortgage insurance coverage to the new loan. If this is true it will be a huge change because previously borrowers with mortgage insurance were not able to participate in the HARP program.

Unfortunately, the cut off dates for eligibility were not changed so any loans taken out after May of 2009 are still not eligible for the program.

The FHFA said the operational details for the program will be available by November 15th 2011. That probably means that the new program won’t be up and running with most authorized lenders until December. The question yet to be answered is how many authorized lenders will choose to participate in the new version of the program in the months to come. But assuming several authorized lenders do participate there is no denying that removing the 125% limit and the allowing borrowers with mortgage insurance to participate will open the program to vastly more borrowers.

Contact us in the sidebar to learn more about the HARP program and other government-backed refinance programs that are available.

In conjunction with the Obama administration announcing intentions to revamp and revitalize some of the government-backed refinance programs that are now in place, several US senators recently sent a letter to regulators urging improvements as well. We get this from a recent HousingWire report:

A group of 13 senators sent a letter to regulators Tuesday, pressing for a plan to boost mortgage refinancing for more homeowners as soon as possible. Such a plan is being widely-discussed admittedly, and now the lawmakers are ready to see some action.

“Time is of the essence and we urge you to act quickly and aggressively to ensure that responsible homeowners receive the full benefit of these lower rates,” the senators said in the letter to Treasury Secretary Timothy Geithner, Department of Housing and Urban Development Secretary Shaun Donovan, Federal Housing Finance Agency Acting Director Edward DeMarco, and National Economic Council Director Gene Sperling.

While a letter from senators might be more show than substance, it does help show there is wide support for upgrades and changes to the HARP programs and other government-backed refinance programs. With any luck regulators will announce the changes and upgrades soon. As soon as changes are announced we will report on them here.

In the meantime, contact us in the sidebar to learn more about the government back refinance programs that are already available while rates are still hovering near all time lows.

A few weeks ago President Obama hinted at a new mortgage refinancing plan his administration was cooking up. Most speculations since then have been that the new plan would be an expansion of the Home Affordable Refinance Program (HARP) to make it available to even more borrowers than the current version of the program. Treasury Secretary Tim Geithner recently said more that would indicate a new plan will be announced soon. We get these quotes from a recent Wall Street Journal blog post:

“My sense is, based on what I’ve seen…it’s going to be meaningful enough to make a difference,” Mr. Geithner said at a Senate Banking Committee hearing…

“They are looking at a range of things and you’ll see more details in a couple of weeks,” Mr. Geithner said.

Stay tuned. It sounds like the changes will be announced in the next few weeks.

In the meantime, rates continue to test new lows this month. Contact us in the sidebar to learn more about the refinance programs that could help you.

More than a week after President Obama announced in a speech before congress that he wanted to make it easier for American home owners to take advantage of the record low interest rates we are seeing on mortgages now there have yet to be any concrete policy changes. Rumors are that the changes will be to the Home Affordable Refinance Program (HARP) with the goal of making it easier for many more home owners to qualify for that program. We’ll keep you post on news as it breaks.

In the meantime, contact us in the sidebar to learn more about the government-backed refinance programs you might already qualify for.

As expected, part of President Obama’s recently revealed jobs plan was a plan to make it easier for more Americans to refinance their mortgages to the historically low interest rates we have been seeing in the last month or so. The president outlined his plan last night and it looks like main idea is to make it easier to qualify for the already existing Home Affordable Refinance Program (HARP). Here are some quotes from a Reuters article on the topic:

President Barack Obama said on Thursday he is seeking to broaden U.S. homeowners’ access to mortgage refinancing in a plan to help the ailing housing market and put money back in the pockets of borrowers needing help locking into record low rates.

“We’re going to work with Federal housing agencies to help more people refinance their mortgages at interest rates that are now near 4 percent,” …

The White House officials said the U.S. Treasury was having talks with both Fannie Mae and Freddie Mac and their regulator — the Federal Housing Finance Agency — on ways to broaden refinancings. The aim is to is to “remove the barriers that exist in the current refinancing program.” …

The refinancing initiative under consideration by the Obama administration would need final approval from the acting head of the Federal Housing Finance Agency, Edward DeMarco. Those close to DeMarco say he is acting as an independent regulator with the goal of conserving the assets at Fannie and Freddie, a position he has staunchly defended before lawmakers since the two firms were taken over by the government three years ago.

The encouraging news is that the Obama Administration does not appear to need the approval of the Republican-led congress to make access to the HARP program easier. Rather the administration mostly needs to persuade the independent head of the FHFA Edward Demarco that their plan is sound.

We’ll keep you posted on the progress of this new initiative. In the meantime, contact us in the sidebar to see which government-backed refinance programs you already qualify for.

The FHFA, the organization responsible for the Home Affordable Refinance Program (HARP) recently announced that the HARP program will be extended another year and is now set to expire June 30, 2012 rather than that same date this year.

The HARP program is designed to help people with conventional mortgages backed by Fannie Mae or Freddie Mac refinance to lower interest rates even if the value of their homes have dropped. With a HARP loan a conventional mortgage can be refinanced at up to 125% of the current value of the home. This is obviously useful to people who are underwater on their mortgages, but the program is also very useful to people who owe 80-100% of the current value of their home because with the HARP program borrowers can refinance to a lower Fannie/Freddie loan without having to add mortgage insurance.

Contact us in the sidebar to learn which programs will best assist your family.

The Obama administration’s Home Affordable Modification Program (HAMP) started pretty strongly out of the gate, but recent evidence indicates the program has been losing steam. We get this from a recent HousingWire article:

The Treasury Department’s Home Affordable Modification Program is dwindling.

According to data released last week from the Office of the Comptroller Currency, lenders started 43,739 new, three-month HAMP trials in the third quarter, down 84% from the peak of 272,709 a year ago.

New trials have been on the decline ever since lenders reported, on average, 57,000 fewer trials than the quarter before. The biggest drop came in first quarter of 2010, when lenders offered 118,000 fewer trials than the previous quarter.

“I think the program is turning out to have a lot less impact on the market than we thought it would have,” said Sen. Ted Kaufman (D-Del.), chairman of Congressional Oversight Panel after it released a scathing report on HAMP last month.

The Treasury launched HAMP in March 2009 to provide an incentive to servicers for the modification of loans on the verge of foreclosure. At the time, the Obama administration said the program would help 3 million to 4 million homeowners avoid losing their home. Under such political pressure, servicers began putting homeowners into three-month trials without checking for documentation.

When a backlog began forming, administrators put renewed emphasis on converting more into permanent modifications, while the Treasury changed the rules prohibiting a new trial until all the documentation was in from the homeowner.

The upshot of it all is that loan modifications just aren’t easy to come by — even with the federal government encouraging them. In addition, there are lots of stats out there indicating that people who do get loan modifications tend to re-default at an alarmingly high rate.

What have lenders been doing instead of modifying loans? Well first lenders will try to get borrowers to just take their lumps and keep paying. In many cases where borrowers fall behind on payments lenders are forging ahead with foreclosures again. However the average foreclosure has been taking something like 18 months to complete from the first late payment. Last, lenders have been accepting short sale offers at a more often and more quickly. Banks accepting a short sale on underwater homes where payments are delinquent has proven to be a good compromise that allows the borrower to get out of the underwater home and allows the lender to save time and money by avoiding the expenses of foreclosing.

Should you still seek a loan modification if you can’t qualify for a refinance? Absolutely. But it appears that loan modifications are getting harder to get lately. Contact us in the sidebar to learn which programs will best fit your situation.

Below is an interesting interview from the folks at Yahoo Finance with Senator Ted Kaufman. Kaufman chaired a recent panel looking at the effectiveness so far of the Home Affordable Modification Program and has come to the conclusion that the program has generally been a failure. That is largely because the program started with a goal of modifying 3-4 million mortgages in order to avoid foreclosures but is on pace to actually modify 800 thousand or fewer.

Of course for those 800 thousand homeowners the program has not been a failure but the overall numbers are much lower than hoped for. The good news for those of you who are interested in a loan modification is that The Treasury is still hoping to work toward that 3-4 million goal. So if you are interested in a modification or a government-backed refinance contact us in the sidebar and we will give you some guidance on the best programs for your family.

Here are some excerpts from the write up associated with the interview:

The Congressional Oversight Panel has declared President Obama’s Home Affordable Modification Program (HAMP) a failure, laying much of the blame at the feet of the Treasury Department.

“Treasury was in a very tough situation but the result is a lot less mortgage modifications than we hoped for,” says Sen. Ted Kaufman (D-Del.), the panel’s chairman. “It’s a failure in regard to fact we originally hoped to save 3 to 4 million American families from foreclosure and are now on target to do 700,000-800,000.”

The version of the Home Affordable Refinance Program directed toward second mortgages is to be implemented at the start of 2011. We get this from a recent HousingWire report on the subject:

Fannie Mae, which administers the Home Affordable Modification Program for the Treasury Department, released guidance for servicers participating in the Second Lien Modification Program (2MP).

Fannie requires servicers to implement 2MP by Jan. 1, 2011. Fannie released the guidance Tuesday in a letter to servicers. All Fannie servicers are required to join the program, and the top-four banks have committed, too.

Under 2MP, only second liens originated on or before Jan. 1, 2009 will be eligible for a modification if its corresponding first lien has been modified under the HAMP. Through August, more than 468,000 distressed loans have been given a permanent modification.

The second lien can be either current or delinquent, but it must hold an unpaid principal balance of more than $5,000.

…

The modification of the second lien will not become effective until the first-lien is modified through HAMP and the borrower has made all required 2MP trial period payments.

Servicers participating in the program must offer a 2MP trial period within 120 calendar days after receiving the first and second-lien matching information from LPS.

There was a recent news release over at MakingHomeAffordable.gov on the details of the new program designed to help unemployed homeowners. Fill in the contact form in the sidebar to learn more about the programs that might apply to you. Here is an excerpt from that release:

By August 1, all mortgage servicers participating in the Making Home Affordable Program will offer extra help for homeowners struggling to make their monthly mortgage payments because of unemployment. The Unemployment Program will offer homeowners a forbearance period to temporarily reduce or suspend their monthly mortgage payments while they seek re-employment.

The minimum forbearance period is three months, although a mortgage servicer may extend it depending on the investor and regulator guidelines. If a homeowner becomes re-employed in that time, the forbearance period will end and the homeowner will be evaluated for a mortgage modification under the Making Home Affordable Program. Unemployment benefits will no longer qualify as income for the mortgage modification program.

During the forbearance period, a homeowner’s monthly mortgage payment must be reduced to no more than 31 percent (or less) of their gross monthly income. The servicer can decide to temporarily suspend payments in full. The payment amount and due dates will be decided by the servicer depending on investor and regulator guidelines.

To qualify, a homeowner must meet the following eligibility criteria:

* The mortgage must be a first lien mortgage, originated on or before January 1, 2009, and the unpaid principal balance must be equal to or less than $729,750 for a one-unit property.
* The property must be the homeowner’s principal residence.
* The mortgage has not been previously modified through a Home Affordable Modification.
* The homeowner was ineligible for a Home Affordable Modification.
* The homeowner is either behind on payments (but not by more than three consecutive months) or it is reasonably forseeable that the homeowner will fall behind.
* The total monthly mortgage payment is greater than 31 percent of the homeowner’s gross monthly income. If the payment is less, it is up to the servicer’s discretion if they will offer the program to the homeowner.
* The homeowner will be unemployed at the start of the forbearance period, and is able to document this because they will be receiving unemployment benefits in the month the forbearance period begins (even if the benefits expire before the forbearance period ends).

A mortgage servicer may require that, based on investor and regulator guidelines, homeowners have received at least three months of unemployment benefits before they begin a forbearance period.

There is no cost to apply to the Unemployment Program, although late charges may accrue while the homeowner is being evaluated for the program or in the program. A mortgage servicer may not collect late charges from the homeowner while they are still in the forbearance period.

The numbers of permanent loan modifications through the Home Affordable Modification Program (HAMP) continue to increase. For instance Bank of America recently reported it granted 70,000 permanent loan modifications total through May of this year. We get the following from a HousingWire article on the topic:

Bank of America pushed its total number of permanent modifications under the Home Affordable Modification Program (HAMP) to roughly 70,000 in May, up from 56,400 in April.

BofA reported more than 630,000 modifications through all of its programs since January 2008. The Treasury Department launched HAMP in March 2009 to provide incentives to servicers for the modification of loans on the verge of foreclosure. Borrowers must make three monthly payments under a trial modification and provide all financial documents to the servicer before it becomes permanent.

In April, servicers reported more than 300,000 permanent modifications under HAMP. Earlier in June, BofA began reducing principal for some qualifying underwater borrowers as part of the modification process.

Fill in the contact form in the sidebar to learn more about which program you could take advantage of.

The announced enhancement to the Obama loan Home Affordable Modification Program (HAMP) is set to roll out on July 1 of this year. Contact us in the sidebar to get advice on your situation. We get this from a recent CNNmoney article on the early results from the program:

Separately, the administration plans to roll out its new program for the unemployed on July 1. Eligible borrowers could enter a forbearance program, which either suspends their monthly payments entirely or reduces them to less than 31% of their pre-tax household income.

Later in the year, two more initiatives will begin. One will encourage servicers to lower loan balances for delinquent borrowers when that is more advantageous to mortgage investors than reducing interest rates.

Principal reduction would be available for eligible borrowers who owe more than 115% of their home’s current value. The balance would be forgiven as long as the homeowner makes timely payments for three years.

The other initiative will allow some borrowers who are current on their mortgages but have seen their property values drop to refinance into Federal Housing Administration loans worth no more than 97.75% of their home’s price. The program is set to start in the fall.

If the borrower has a second lien, the total mortgage debt could not exceed 115% of the property’s value. Homeowners, however, must meet FHA’s qualifications and have a credit score of at least 500. Their new monthly payments would be no more than 31% of their monthly income.

Here are some more interesting excerpts from the recent press release on the progress of the HAMP program:

At the time we launched HAMP in March 2009, President Obama said that the program would “enable as many as three to four million homeowners to modify the terms of their mortgages.”

* The target of “three to four million homeowners” includes both agency loans (owned or guaranteed by the Government-Sponsored Enterprises, Fannie Mae and Freddie Mac) and non-agency loans.
* We have continued to report offers of trial modifications, because the offer is the servicer’s commitment to extend a trial modification subject to the borrower’s agreement. At this point, a homeowner is provided an opportunity to reduce his or her monthly mortgage payment.
* There will be fewer permanent modifications than trial modifications, as modifications are only offered permanent status once the homeowner has accepted a trial modification, has performed for at least three months in a trial modification, and has met the full documentation requirements for the permanent modification. By requiring borrowers to demonstrate their ability and willingness to meet their monthly obligations, the trial modification helps ensure that taxpayer dollars are not spent on unsustainable modifications.
* Loan modifications have a risk of re-default. Among the permanent modifications, some will re-default and that factor is incorporated into the program’s design.
* In fact, we designed our program specifically to protect the taxpayer in cases where re-default occurs – payments to servicers, investors, and borrowers are conditional on actual performance over time.
* The projection of three to four million homeowners helped is based on our best estimate of the number of HAMP-eligible households that are likely to require assistance during the four-year program. The number of households that actually require assistance from HAMP during the remaining three years may diverge from our expectations if economic conditions or home prices evolve differently than projected.

More than 1.4 million borrowers have been extended a modification offer, with approximately 1.2 million of these approved offers resulting in modification trials. In a program scheduled to last nearly four years (March 2009 through December 2012), either figure places the program well on schedule to meet the goal announced by President Obama.

Contact us in the sidebar to discuss your situation.

There was a pretty useful press release at the MakingHomeAffordable web site recently. It has a lot of information but here are a few highlights:

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

The Administration has:

* Launched a modification initiative to help homeowners reduce mortgage payments to affordable levels and to prevent avoidable foreclosures. Homeowners in active modifications are saving around $500 per month on average;
* Supported temporarily 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 to provide needed support to keep markets functioning during this crisis;
* Expanded refinancing flexibilities for the Fannie Mae and Freddie Mac loans, particularly for borrowers with negative equity. Combined with historically low mortgage rates, this has helped more than four million American homeowners to refinance, saving an estimated $150 per month on average and more than $7 billion cumulatively in the past year;
* Launched a $23.5 billion Housing Finance Agencies Initiative which is helping more than 90 state and local housing finance agencies (HFAs) across 49 states provide sustainable homeownership and rental resources for American families;
* Supported the First-Time Homebuyer Tax Credit, and the subsequent extension and expansion of the credit to also assist move-up buyers, which has helped hundreds of thousands of responsible Americans purchase homes.
* Through the Recovery Act, provided over $5 billion in support for affordable rental housing through low-income housing tax credit programs and $2 billion in additional support for the Neighborhood Stabilization Program (NSP), on top of the first round of $4 billion of NSP funds, to restore neighborhoods hardest-hit by concentrated foreclosures; and
* On February 19, 2010, announced the $1.5 billion HFA Hardest-Hit Fund for five state HFAs in the nation’s hardest-hit housing markets to design innovative, locally targeted foreclosure prevention programs. On March 29, 2010, we announced a $600 million expansion of that program for an additional five HFAs.

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 near historic lows – the primary interest rate is now about 5.20 percent. We are also seeing encouraging signs in housing indicators – home prices and the pace of home sales have stabilized in recent months.

Contact us in the sidebar if you would like to discuss your situation.

As industry insiders have known for a long time, when it comes to getting a loan modification working with a bank tends to be easier than working with a loan servicing company. This is partially because loan servicing companies have less authority to make decisions about modifications. But it is also partially due to laziness and/or ineptitude in other cases. Treasury Secretary Timothy Geithner promised to do more to crack down on loan servicers that aren’t doing enough to help people avoid foreclosure. Here is a bit from a recent Reuters article on the topic:

U.S. Treasury Secretary Timothy Geithner on Thursday slammed mortgage service companies for failing to do enough to help Americans avoid losing their homes and promised to crack down on shoddy practices.

“We do not believe servicers are doing enough to help homeowners — not doing enough to help them navigate the difficult and frightening process of avoiding foreclosure,” Geithner said in prepared remarks for delivery to a Senate appropriations subcommittee.

He said Treasury was “troubled” by reports that servicers had done things like foreclose on homeowners who were potentially eligible for relief under the government’s Home Affordable Mortgage Program, lost documents or claimed to have done so and even steered troubled homeowners away from available assistance.

“None of this is acceptable,” Geithner said, adding that Treasury was doing “targeted, in-depth compliance reviews” to make sure that servicers were acting in good faith.

See this document published over at MakingHomeAffordable.gov. It outlines the new FHA plans for underwater homeowners. Here are some excerpts from the document:

Today the Administration announced adjustments to Federal Housing Administration (FHA) programs that will permit lenders to provide additional refinancing options to homeowners who owe more than their home is worth because of large falls in home prices in their local markets. These adjustments will provide more opportunities for qualifying mortgage loans to be responsibly restructured and refinanced into FHA loans as long as the borrower is current on the mortgage and the lender reduces the amount owed on the original loan by at least 10 percent. This option should be available by the fall.

The new program is contingent on lenders voluntarily writing down the principal balance on these loans. It is not clear yet how many lenders will be interested in doing that or what specific incentives the new program will give the lenders to participate. We will continue to update you here as more information comes out.

There was an interesting article in the LA Times recently about the declaration of some lawmakers and a watchdog group that the Obama loan modification program, the home affordable modification program (HAMP) has been a failure. The White House promised several changes to the program to improve it. Here are some excerpts from that piece:

Among the changes to take effect June 1 is a requirement that companies servicing mortgages must prescreen every borrower who has missed two or more payments to determine whether he or she is eligible for the Home Affordable Modification Program. If so, the servicer “must proactively solicit those borrowers” to participate. Those companies also are required to make quicker decisions about eligibility and speedily process documents.

And the program is being expanded to include borrowers who have filed for bankruptcy protection.

Assistant Treasury Secretary Herbert M. Allison Jr. announced the changes at a hearing about the program by the House Oversight and Government Reform Committee. Lawmakers from both parties have been critical of the program’s effect on home foreclosures. …

Rep. Darrell Issa (R-Vista) was more blunt. He said the program had been a failure and actually had increased the pain for some homeowners who had been given the false impression that their mortgage payments could be permanently lowered.

“People are making payments in hopes that it would lead to a solution, when it appears as though a great many of them should be looking for more affordable alternate housing,” Issa said.

The Obama refinance program for people with loans backed by Fannie Mae or Freddie Mac (also known as the Home Affordable Refinance Program) just increased the loan-to-value it will allow from 105% of the appraised value of the home to 125%. While this is good news for borrowers we will have to wait and see which lenders are actually willing to participate in the new program. Many lenders were only allowing up to 95% on the program even though it previously allowed for more so we will see which lenders allow for 125% in practice. Here is a link to the announcement and here are some excerpts:

U.S. Housing and Urban Development Secretary Shaun Donovan today announced an expansion of the Obama Administration’s Home Affordable Refinance Program to include participation by borrowers who are current but up to 125 percent underwater on their mortgage. Under authorization provided by the Federal Housing Finance Agency, borrowers whose mortgages are currently owned or guaranteed by Fannie Mae and Freddie Mac will now be allowed to refinance those loans according to the terms of the Home Affordable Refinance program established earlier this year.

…

Currently, only those borrowers whose first mortgage does not exceed 105 percent of the current market value of the property are eligible for the Obama Administration’s Home Affordable Refinance Program. For example if the property is worth $200,000, the borrower must owe $210,000 or less. Today’s announcement will allow more homeowners to become eligible for the program, by increasing the eligibility to 125 percent.

Here is the pdf of the fact sheet on the new program announced yesterday to help people modify their second mortgages. Below are some important excerpts:

We estimate up to 50 percent of at-risk mortgages currently have second liens. By offering homeowners a way to lower payments on their second mortgages through our Second Lien Program, we may potentially reduce payments further for up to 1 to 1.5 million homeowners, accounting for up to 50 percent of participants in the Home Affordable Modification Program, as well as maximize the effectiveness of our first lien modification program. The program ensures that first and second lien holders are treated fairly and consistent with priority of liens.

…

These new details on the Second Lien Program and the integration of Hope for Homeowners mark ongoing progress of the Making Home Affordable Program in improving mortgage affordability for responsible homeowners and keeping more Americans in their homes.

…

For amortizing loans (loans with monthly payments of interest and principal), we will share the cost of reducing the interest rate on the second mortgage to 1 percent. Participating servicers will be required to follow these steps to modify amortizing second liens:

- Reduce the interest rate to 1 percent;

- Extend the term of the modified second mortgage to match the term of the modified first mortgage, by amortizing the unpaid principal balance of the second lien over a term that matches the term of the modified first mortgage;

- Forbear principal in the same proportion as any principal forbearance on the first lien, with the option of extinguishing principal under the Extinguishment Schedule;

- After five years, the interest rate on the second lien will step up to the then current interest rate on the modified first mortgage, subject to the Interest Rate Cap on the first lien, set equal to the Freddie Mac Survey Rate;

- The second mortgage will re-amortize over the remaining term at the higher interest rate(s); and

- Investors will receive an incentive payment from Treasury equal to half of the difference between (i) the interest rate on the first lien as modified and (ii) 1 percent, subject to a floor.

For interest-only loans, we will share the cost of reducing the interest rate on the second mortgage to 2 percent. Participating servicers will be required to follow these steps to modify interest-only second liens:

- Reduce the interest rate to 2 percent;

- Forbear principal in the same proportion as any principal forbearance on the first lien, with the option of extinguishing principal under the Extinguishment Schedule;

- After five years, the interest rate on the second lien will step up to the then current interest rate on the modified first mortgage, subject to the Interest Rate Cap on the first lien, set equal to the Freddie Mac Survey Rate;

- The second lien will amortize over the longer of the remaining term of the modified first lien or the originally scheduled amortization term, with amortization to begin at the time specified in the original contract;

- Investors will receive an incentive payment from Treasury equal to half of the difference between (i) the lower of the contract rate on the second lien and the interest rate on the first lien as modified and (ii) 2 percent, subject to a floor.

A gaping hole in most of the mortgage assistance programs to date has been the problem of second mortgages. While the current programs deal with first mortgages in a number of ways none of them dealt specifically with second mortgages — particularly in cases when the homeowner is underwater/upside-down (owes more than the home is worth) or late on the mortgage already. The Obama administration announced the first attempted remedy of that problem today.

Here are some quotes from a WSJ blog on the announcement:

The Obama administration unveiled a fresh set of incentives Tuesday for mortgage servicers to help strapped U.S. homeowners.

Under a new program, the government will pay mortgage servicers $500 up front and $250 a year for three years for successfully modifying a second mortgage, such as a home equity loan.

Second mortgages have complicated government efforts to help borrowers avoid foreclosure. According to the U.S. Treasury Department, up to 50% of at-risk mortgages have second liens and many properties in foreclosure have more than one lien.

One of the more surprising revelations from last week about the Obama Fannie/Freddie program is that it does not apply exclusively to primary residences. Rather, it applies to any home that is backed or insured by Fannie or Freddie.

Of course to take advantage of one of the new Home Affordable Refinance loans a borrower needs to be a rare breed:

- Credit scores above 680
- Plenty of income to easily afford the mortgage payments
- No second mortgage on the home (lest you incur a huge penalty)
- At least break even on the equity

I’m not sure where the administration is getting the 3-4 million homeowner number who will reportedly benefit from this refi portion the new plan, but with those kinds of restrictions it is hard to believe anywhere near that many homeowners will fit the mold.

Perhaps they are counting on the loan modification portion helping most of the people instead…