Making Home Affordable Program Update

Transcription

1 Making Hme Affrdable Prgram Update On February 18, the Obama Administratin annunced the Making Hme Affrdable (MHA) Prgram, a cmprehensive plan t stabilize the U.S. husing market. As prmised, tw weeks later n March 4, the Administratin published detailed prgram guidelines and authrized servicers t begin mdificatins and refinancings under the plan immediately. Servicers cvering mre than 75 percent f lans in the cuntry have nw begun mdificatins and refinancings under the Administratin s MHA Prgram. As previewed in the guidelines released March 4, tday we are annuncing additinal details n the Secnd Lien Prgram and the integratin f Hpe fr Hmewners int the MHA Prgram. Millins f wrkers have lst their jbs r had their hurs cut, and are nw struggling t stay current n their mrtgage payments. As a result, as many as 6 millin families are expected t face freclsure in the next several years, with millins mre struggling t stay current n their mrtgage payments. Secnd liens cntribute t the number f American hmewners unable t affrd their husing payments. Even where a first mrtgage payment may be affrdable, the additin f a secnd mrtgage payment can increase mnthly payments beynd affrdable levels. In additin, secnd mrtgages ften cmplicate r prevent mdificatin r refinancing f a first mrtgage. We estimate up t 50 percent f at-risk mrtgages currently have secnd liens. By ffering hmewners a way t lwer payments n their secnd mrtgages thrugh ur Secnd Lien Prgram, we may ptentially reduce payments further fr up t 1 t 1.5 millin hmewners, accunting fr up t 50 percent f participants in the Hme Affrdable Mdificatin Prgram, as well as maximize the effectiveness f ur first lien mdificatin prgram. The prgram ensures that first and secnd lien hlders are treated fairly and cnsistent with pririty f liens. Separately, the integratin f an imprved Hpe fr Hmewners prgram will help underwater brrwers, wh ften face heightened risks f freclsure, by requiring principal writedwns t help hmewners increase the equity they wn in their hmes. These new details n the Secnd Lien Prgram and the integratin f Hpe fr Hmewners mark nging prgress f the Making Hme Affrdable Prgram in imprving mrtgage affrdability fr respnsible hmewners and keeping mre Americans in their hmes. Making Hme Affrdable Secnd Lien Prgram and Supprt fr Hpe fr Hmewners 1. Secnd Lien Prgram T Create a Cmprehensive Affrdability Slutin fr Hmewners A Secnd Lien Prgram t Reach up t 1 t 1.5 Millin Hmewners Shared Effrts with Lenders t Reduce Secnd Mrtgage Payments Pay-fr-Success Incentives fr Servicers, Investrs and Brrwers Payment Schedule fr Extinguishing Secnd Mrtgages Autmatic Mdificatin f a Secnd Lien When a First Lien is Mdified 2. Supprt fr Hpe fr Hmewners Inclusin f Hpe Fr Hmewners in the Making Hme Affrdable Prgram Requirement that Servicers Seek Hpe fr Hmewners Refinancing in Tandem with a MHA Trial Mdificatin Pay-Fr-Success Incentives Similar t Other MHA Mdificatins Mre Principal Writedwns t Help Underwater Brrwers Supprt fr Legislatin t Strengthen Hpe fr Hmewners Treasury Purchase f Special Ginnie Mae Pls t Prvide Liquidity fr Hpe fr Hmewners Lans 1

2 1. Secnd Lien Prgram T Create a Cmprehensive Affrdability Slutin fr Hmewners: We estimate up t 50 percent f at-risk mrtgages have secnd liens. Even if a first lien is mdified t create an affrdable payment, secnd liens can cntribute t much higher freclsure rates if nt addressed. The Secnd Lien Prgram crdinates with the first mrtgage mdificatin prgram t lwer payments n secnd liens and ffer a cmprehensive affrdability slutin fr hmewners, helping keep mre than a millin Americans in their hmes. In sme cases where apprpriately tailred t the brrwer, servicers may als chse t accept a lump-sum payment frm Treasury t extinguish sme r all f a secnd lien. A Secnd Lien Prgram t reach up t 1 t 1.5 millin hmewners, and ptentially reduce payments further fr up t 50 percent f participants in the Hme Affrdable Mdificatin Prgram: The Secnd Lien Prgram will be a cmplementary prgram t the first lien mdificatin prgram. It is intended t reach mre than a millin respnsible hmewners wh are struggling t affrd their mrtgage payments because f the current recessin, yet cannt sell their hmes because prices have fallen s significantly. In the current ecnmy, in which 5.1 millin jbs have been lst ver the past 14 mnths, millins f hard wrking families have seen their mrtgage payments rise t 40 r even 50 percent f their mnthly incme particularly if they received subprime and extic lans with explding terms and hidden fees. The Secnd Lien Prgram will help create a sustainably affrdable mrtgage payment fr millins f hmewners wh qualify fr a first mrtgage mdificatin, yet still face challenges in affrding their mnthly payments because f a secnd mrtgage. Shared Effrts with Lenders t Reduce Secnd Mrtgage Payments: Making Hme Affrdable will share the cst with lenders f reducing payments fr hmewners n secnd mrtgages. Fr amrtizing lans (lans with mnthly payments f interest and principal), we will share the cst f reducing the interest rate n the secnd mrtgage t 1 percent. Participating servicers will be required t fllw these steps t mdify amrtizing secnd liens: Reduce the interest rate t 1 percent; Extend the term f the mdified secnd mrtgage t match the term f the mdified first mrtgage, by amrtizing the unpaid principal balance f the secnd lien ver a term that matches the term f the mdified first mrtgage; Frbear principal in the same prprtin as any principal frbearance n the first lien, with the ptin f extinguishing principal under the Extinguishment Schedule; After five years, the interest rate n the secnd lien will step up t the then current interest rate n the mdified first mrtgage, subject t the Interest Rate Cap n the first lien, set equal t the Freddie Mac Survey Rate; The secnd mrtgage will re-amrtize ver the remaining term at the higher interest rate(s); and Investrs will receive an incentive payment frm Treasury equal t half f the difference between (i) the interest rate n the first lien as mdified and (ii) 1 percent, subject t a flr. Fr interest-nly lans, we will share the cst f reducing the interest rate n the secnd mrtgage t 2 percent. Participating servicers will be required t fllw these steps t mdify interest-nly secnd liens: Reduce the interest rate t 2 percent; 2

3 Frbear principal in the same prprtin as any principal frbearance n the first lien, with the ptin f extinguishing principal under the Extinguishment Schedule; After five years, the interest rate n the secnd lien will step up t the then current interest rate n the mdified first mrtgage, subject t the Interest Rate Cap n the first lien, set equal t the Freddie Mac Survey Rate; The secnd lien will amrtize ver the lnger f the remaining term f the mdified first lien r the riginally scheduled amrtizatin term, with amrtizatin t begin at the time specified in the riginal cntract; Investrs will receive an incentive payment frm Treasury equal t half f the difference between (i) the lwer f the cntract rate n the secnd lien and the interest rate n the first lien as mdified and (ii) 2 percent, subject t a flr. Pay-fr-Success Incentives fr Servicers and Brrwers: The Secnd Lien Prgram will have a pay-fr-success structure similar t the first lien mdificatin prgram, aligning incentives t reduce hmewner payments in a way mst cst effective fr taxpayers. Servicers can be paid $500 up-frnt fr a successful mdificatin and then success payments f $250 per year fr three years, as lng as the mdified first lan remains current. Brrwers can receive success payments f up t $250 per year fr as many as five years. These payments will be applied t pay dwn principal n the first mrtgage, helping t build the brrwer's equity in the hme. Payment Schedule t Cmpensate Lenders fr Extinguishing a Secnd Mrtgage: As an alternative t mdifying the secnd lien, lenders/investrs will have the ptin t extinguish secnd liens in exchange fr larger payments under a pre-set frmula. This will allw secnd lien hlders t target principal extinguishment t the brrwers where extinguishment is mst apprpriate. Fr lans that are mre than 180 days past due at the time f the mdificatin, the lender/investr will be paid three cents per dllar f UPB extinguished. Table: Extinguishment Price Schedule: Per Dllar f UPB in LTV range (Lans less than 180 days past due) Secnd-Lien LTV Range Back-End < t 140 > 140 DTI > 55 % < 55 % Clear and Cnsistent Guidelines fr Secnd Lien Mdificatins: As with the first lien mdificatin prgram, the Secnd Lien Prgram prvides clear and cnsistent guidelines fr 3

4 mdifying bth amrtizing and interest-nly secnd liens. A lack f cmmn standards has limited lan mdificatins f bth first and secnd liens in the past, even when mdificatins are likely t bth reduce the chance f freclsure and raise the value f the securities wned by investrs. Mrtgage servicers, wh shuld have an interest in instituting cmmn-sense lan mdificatins, ften refrain frm ding s because f a lack f clear standards. Clear and cnsistent guidelines fr mdificatins are a key cmpnent f freclsure preventin. Autmatic Mdificatin f a Secnd Lien When a First Lien is Mdified: The Secnd Lien Prgram will facilitate autmatic mdificatin f a secnd lien when a first lien is mdified fr participating servicers, t ensure a cmprehensive affrdability slutin fr brrwers. Secnd Lien Mdificatin May Nt Delay First Lien Mdificatin: The Secnd Lien Prgram will be a vluntary parallel prgram t the first lien mdificatin prgram. Mdificatin f a secnd lien will nt delay mdificatin f a first lien. The mdificatin ffer fr a secnd lien under the prgram will ccur as sn as the secnd lien servicer is able t prepare the terms and cntact the brrwer. Cst-Effective fr Taxpayers: T prtect taxpayers, the MHA Secnd Lien Prgram will fcus n sund mdificatins. All the payments are designed arund the principle f pay fr success. Brrwers, servicers and lenders/investrs all have aligned incentives under the prgram t cmplete successful mdificatins at an affrdable and sustainable level. 2. Supprt fr Hpe fr Hmewners: An imprved Hpe fr Hmewners prgram can ffer an imprtant avenue fr struggling brrwers t btain a sustainable mrtgage. Hpe fr Hmewners can particularly benefit underwater brrwers by helping t increase the equity they wn in their hmes. These additinal supprts are designed t wrk in tandem and take effect with the imprved and expanded prgram under cnsideratin by Cngress. Inclusin f Hpe Fr Hmewners in the Making Hme Affrdable Prgram: Making Hme Affrdable will include Hpe fr Hmewners as an imprtant element f a cmprehensive prgram t help respnsible hmewners imprve affrdability f their mrtgages and avid preventable freclsure. Requirement that Servicers Seek Hpe fr Hmewners Refinancing in Tandem with a MHA Trial Mdificatin: When a brrwer is in a trial Hme Affrdable Mdificatin, a servicer will be required t evaluate a brrwer fr a Hpe fr Hmewners refinance and t ffer the refinancing pprtunity t the brrwer if he r she qualifies. If a servicer determines the brrwer is eligible fr a Hpe fr Hmewners refinance in the initial discussin with the brrwer, the servicer is required t als ffer the refinance at the same time as the trial mdificatin ffer. Pay-Fr-Success Incentives Similar t Other MHA Mdificatins: Servicers and lenders wh help make mrtgages mre affrdable fr struggling hmewners thrugh Hpe fr Hmewners will receive pay-fr-success incentive payments similar t the incentive payments ffered fr Hme Affrdable Mdificatins. Servicers can receive a $2,500 up-frnt incentive payment fr a successful Hpe fr Hmewners refinancing. Lenders wh riginate the new Hpe fr Hmewners refinanced lans are eligible fr success fees f up t $1,000 per year fr up t three years, s lng as the refinanced lan remains current. 4

5 These incentive payments will nly be available t servicers and riginatrs wh are participants in the Making Hme Affrdable Prgram. Mre Principal Writedwns t Help Underwater Brrwers: Hpe fr Hmewners ffers hmewners mrtgage refinancings that include principal writedwns. This will allw underwater brrwers t increase the amunt f equity they wn in their hmes. Underwater brrwers are mre likely t be at risk f freclsure, s increasing equity fr these hmewners thrugh Hpe fr Hmewners will be an imprtant tl fr the Administratin in preventing avidable freclsures and keeping Americans in their hmes. Supprt fr Legislatin t Strengthen Hpe fr Hmewners: In rder t ensure that many mre brrwers are able t participate in Hpe fr Hmewners, we are wrking t imprve the prgram and actively pursuing legislatin s that the FHA may reduce fees paid by brrwers, increase flexibility fr lenders t refinance trubled lans, permit brrwers with higher debt lads t qualify, and make further imprvements t strengthen Hpe fr Hmewners s that it can functin effectively as an integral part f the Making Hme Affrdable Prgram. Treasury Purchase f Special Ginnie Mae Pls t Prvide Liquidity fr Hpe fr Hmewners Lans: Under HERA authrity, Treasury r the GSEs wuld purchase special Hpe fr Hmewners Ginnie Mae IIs wrapped by the GSEs. These purchases will increase secndary market liquidity fr new Hpe fr Hmewners lans, supprting additinal assistance t hmewners. ### 5