About Government Refinance and Home Purchase Programs

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.

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.

The Obama refinance program — the Home Affordable Refinance Program — has gotten off to a slow start. Not only have banks had a hard time implementing the program, rates have deteriorated significantly since mid May so refinancing is no longer as enticing for consumers. Additionally, Freddie Mac was very slow to allow anyone but the existing lender to participate in the program so that created problems for some borrowers. On top of that, while the program officially allowed for refinances of up to 105% of the value of the home, most lenders were only willing to fund up to 95% of the value of the home. (This on top of the restrictions for people with second mortgages and the high credit score requirements.)

Well news is coming out this weekend that the Obama administration is not ready to throw in the towel on the program. Here are some quotes from a recent Bloomberg article on the topic:

We’re actively considering how to structure a program that makes sense over 105 percent, Federal Housing Finance Agency Director James Lockhart said yesterday. He said a ratio of 125 percent is a number that’s on the table, though not necessarily the number we’re going to end up with.

…

While this will help some borrowers with higher interest rate loans, you really need to get mortgage rates down below 5 percent to have a huge impact on refinancing, Scott Buchta, a strategist at Guggenheim Capital Markets LLC in Chicago, said.

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…

Fannie Mae and Freddie Mac put out some details for lenders on the new Home Affordable Refinance program. (The full documents can be found here.) As has been announced, the Home Affordable Refinance program is the part of the Obama refinance plan for borrowers who are not in trouble but who, because of home values dropping, have less than 20% equity and thus cannot refinance into the low interest rate loans that are available now. See here for the things that still disqualify borrowers from refinancing. Borrowers who cannot refinance can request a loan modification from their current lender(s).

Here are some interesting tidbits about the new Home Affordable Refinance program:

1. If your middle credit score is below 680-700 the risk-based pricing will likely preclude you from this particular program. The FHA program is still available for borrowers who have credit scores from 620 to 700.

2. If you owe more on your first mortgage than your home is worth this program will probably not work. While the program allows for you to refinance your first for up to 105% of the current value of the home, that extra 5% is mostly there to cover closing costs on the refinance loan.

3. If you have a second mortgage the fees associated with a Home Affordable Refinance may make the program untenable. The program allows you to refinance the first mortgage and keep your second mortgage in place but there are substantial pricing penalties if the amount of your first and second mortgage combined is greater than 95% of the current value of the home. Note: If your first and second add up to more than the value of your home you can still refinance the first mortgage through the FHA program with no penalties as long as the second mortgage holder is willing to subordinate their loan (meaning willing to remain in second lien position).

4. If your mortgage does not have mortgage insurance now your new Home Affordable Refinance loan does not need mortgage insurance either even if your loan to value is greater than 80%. However if you do have mortgage insurance now that insurance is supposed to transfer to the new loan under the program.

5. The program won’t really kick in until April by most accounts. While Fannie and Freddie have announced the guidelines it will take a while for the banks and investors to ramp up and be ready to start funding the new loans.

Please contact us or comment below with any other questions.

The Obama released some of the details of the Making Home Affordable plan today with not many surprises. See the guideline summary pdf here.

The plan is split into two parts; the first is for refinances and the second, larger part, is for loan modifications. The refinance portion is dubbed The Home Affordable Refinance and it is the portion our group focuses on. Here are some of the basic qualification questions for The Home Affordable Refinance program:

1. Is your home your primary residence?
2. Do you have a Fannie Mae or Freddie Mac loan? If you don’t know contact:
* Fannie Mae, 1-800-7FANNIE (8am to 8pm EST). www.fanniemae.com/homeaffordable
* Freddie Mac, 1-800-FREDDIE (8am to 8pm EST). www.freddiemac.com/avoidforeclosure/
3. Are you current on your mortgage payments?
* “Current” means that you haven’t been more than 30-days late on your mortgage payment in the last 12 months.
4. Do you believe that the amount you owe on your first mortgage is about the same or less than the current value of your house?

If you meet those four requirements a Making Home Affordable Refinance may work for you. If that is the case please contact us by filling in the contact form in the sidebar.

If you do not meet the above requirements then the second part of the plan, The Home Affordable Modification, might apply to you. In order to check on a Home Affordable Modification please contact your current lender or servicer directly.