The Obama Administration is again giving a boost to its much criticized foreclosure rescue campaign by easing mortgage modification rules, tripling incentives to participating lenders and possibly getting Fannie Mae and Freddie Mac to reduce principals.
Federal officials have altered the program in the past to streamline or improve mortgage servicer output and borrower eligibility – while responding to homeowner complaints regarding botched modifications.
The Home Affordable Modification Program (HAMP) has started 909,953 permanent mortgage modifications through November 2011, but another 923,545 attempts at reducing monthly payments have been cancelled, according to the government’s latest figures.
HAMP targeted 3 million to 4 million homeowners, but it lists a pool of only 891,542 eligible delinquent borrowers as of Oct. 31. Meanwhile, cancelled modifications have steadily surpassed those that remain active since the program’s inception in 2009. HAMP is scheduled to end Dec. 31 of this year.
HAMP’s latest enhancements include incentives to Fannie Mae and Freddie Mac, the government-owned mortgage financing giants, to reduce principals on loans for borrowers who are “underwater,” or owe more than the value of their homes. Previously, the government had only offered incentives to private lenders and banks.
Whether Fannie and Freddie accept the Obama administration offer is up to Edward J. DeMarco, acting director of the Federal Housing Finance Agency, which is responsible for minimizing losses to the companies and to taxpayers.
In a written statement, DeMarco said he would review potential costs and benefits of participating in HAMP’s principal write-down effort. But he has opposed such a strategy in the past, citing the financial health of the two companies and taxpayer exposure to further instability.
Fannie and Freddie have been granted about $170 billion in taxpayer bailouts. The U.S. Treasury will continue to pick up quarterly losses for the two entities through next year. Fannie and Freddie own or back about half of all U.S. mortgages.
The HAMP changes were announced today in a joint press conference held by Housing and Urban Development Secretary Shaun Donovan, Assistant Treasury Secretary Tim Massad, and White House National Economic Council Director Gene Sperling.
Here’s an overview of the changes:
- Borrowers whose debt ratio is below 31 percent of their incomes may now be eligible for assistance. HAMP was designed for homeowners with a debt ratio above 31 percent. The new guidelines will consider other debt when calculating debt-to-income ratios.
- Eligibility will be extended to owners of rentals properties: HAMP had applied solely to owner-occupied homes.
- The new incentives would pay between 18 cents and 63 cents for every dollar that lenders take off the mortgage principal, up from between 6 cents and 21 cents.
- Fannie Mae and Freddie Mac do not offer principal reductions in their current HAMP participation. Treasury officials now say they will pay the same principal reduction incentives to Fannie or Freddie, if they allow servicers to forgive some principal in a HAMP modification.
The HAMP program changes are separate from a new refinancing plan for “responsible homeowners” that Obama promised during his state of the union speech this week. That effort will be detailed in coming weeks.