Administration Releases Details of Foreclosure Relief Plan
Details of the mortgage refinance and modification initiatives unveiled last month by President Obama were released on March 4 as the Making Home Affordable (MHA) program.
Aimed at preventing millions of foreclosures, the plan has three main elements:
- Home Affordable Refinance Program
Fannie Mae and Freddie Mac have announced that they will now refinance mortgages they own or guarantee for borrowers who owe more than 80% but not more than 105% of the current value of their home. Borrowers have had difficulty refinancing such loans because the private mortgage insurance policies that mortgages with 80% or greater loan-to-value rarios require are increasingly difficult to obtain.
The refinancing initiatives will begin on April 1 and the refinanced mortgages must be originated by June 10, 2010.
The Administration believes this plan will enable Fannie Mae and Freddie Mac to provide refinancing to four million to five million home owners.
- Home Affordable Modification Program
This plan builds on the loan modification protocol developed by the Federal Deposit Insurance Corp., under which a loan is modified by reducing the interest rate, increasing the term and/or deferring or reducing principal payments. It creates new incentives for lenders to work with borrowers to modify the terms of loans at risk of default or foreclosure. Participating lenders are required to reduce payments to no more than 38% of a borrower’s income. The government will then provide a subsidy to help further cut the borrower’s mortgage debt-to-income ratio to 31%.
To encourage their participation in the program, the plan compensates lenders for modifying loans and offers them additional financial incentives to modify loans prior to default.
The program also encourages borrowers to stay current on their payments. Those who participate will be required to make payments on time in return for this opportunity to reduce their monthly mortgage payments and stay in their homes. Home owners who remain current on their mortgage payments following loan modification will be eligible for an incentive of up to $1,000 a year from the government for five years. The bonus will be applied to the borrower’s mortgage to lower the principal balance.
The program is expected to reach up to three to four million at-risk home owners at a cost of up to $75 billion.
The program is available until Dec. 31, 2012, but loans can only be modified once.
Borrowers are eligible if their mortgage payments are a high percentage of their income, or if their mortgage is “underwater” — a higher amount than the house is worth. Delinquency is not a requirement for eligibility. This program will also serve home owners who have not missed payments, but who are in danger of doing so. To increase the potential success rate, the modification program requires HUD-approved counseling for families with high (55%) total debt-to-income ratios.
Eligible mortgages must have been originated on or before Jan. 1, 2009. The unpaid principal balance must be equal to or less than $729,750 (the current loan limit ceiling) and there is no maximum or minimum loan-to-value requirement.
- Initiatives to Bolster Fannie Mae and Freddie Mac
The plan seeks to shore up Fannie Mae and Freddie Mac to help keep mortgage rates low for millions of middle-class families looking to buy a new home or to refinance an existing one. The Treasury Department will provide additional financial support for Fannie and Freddie and allow them to increase their portfolios, which is designed to help the broader mortgage finance market.
The Treasury and the Federal Reserve will also continue purchasing Fannie Mae and Freddie Mac mortgage-backed securities to lower mortgage rates and to maintain stability and liquidity in the marketplace.
The foreclosure prevention package also calls on Fannie and Freddie to provide support to state housing finance agencies. These agencies are currently frozen out of the credit markets and are unable to provide much-needed support to first-time home buyers.
For more information, e-mail Bill Renner at NAHB, or call him at 800-368-5242 x8597.
Attend the 2009 NAHB Legislative Conference on March 24
Builders and housing industry professionals should attend the 2009 NAHB Legislative Conference on Tuesday, March 24 in Washington, D.C. to tell members of Congress that housing deserves 100% of their ongoing attention so housing can once again lead the nation out of this troubled economy.
With policymakers in Washington confronting the most difficult financial crisis since the 1930s, attending this year’s conference could be one of the most important decisions that builders make this year — especially considering the growing downward momentum in housing and the nation’s job market.
This year’s NAHB Legislative Conference on March 24 will take place earlier than the NAHB spring board of directors meeting because of the depth of the downturn and the need for a solution.
For more information and to register for the legislative conference, click here; or e-mail Molly Murray at NAHB or call her at 800-368-5242 x8282.