Saying that half of at-risk mortgages have second liens that complicate the process of modifying them to prevent foreclosure, the Obama administration today announced that the government will share in the cost of lowering payments on second mortgages and provide incentive payments to loan servicers who go along.
The new Second Lien Program is designed to work in tandem with first-loan modifications made under the Making Home Affordable Program. Like Home Affordable first loan modifications, the government will share in the cost of reducing payments on a borrower’s second mortgage, and pay loan servicers incentives for making successful modifications.
On amortizing loans with monthly payments of interest and principal, for example, the government will share in the cost of reducing the interest rate on the second mortgage to 1 percent for five years.
Servicers can be paid $500 up-front for a successful modification, and $250 per year for three years as long as the modified first loan remains current. Borrowers can receive payments of up to $250 per year for up to five years, with the payments applied to pay down principal on their first mortgage.
In announcing the Second Lien Program, the administration said up to 1 million to 1.5 million homeowners may be eligible, or as many as half of the 3 million to 4 million at-risk homeowners targeted by the Home Affordable loan modification program.
In a separate move, the administration said it wants to beef up the Federal Housing Administration’s (FHA) Hope for Homeowners loan refinancing program and incorporate it into the Making Home Affordable program.
Loan servicers would be required to evaluate borrowers in trial Home Affordable loan modifications for eligibility for Hope for Homeowners refinancing, and offer it to them if they qualified.
The Hope for Homeowners program requires participating lenders to write down loan principal to make payments more affordable to borrowers. So far, there have been few takers. The Obama administration said it would seek legislation that would allow FHA to reduce the fees paid by borrowers, increase flexibility for lenders to refinance troubled loans, and permit borrowers with higher debt loads to qualify.
The plan is for the Treasury Department or Fannie Mae and Freddie Mac to purchase special Hope for Homeowners mortgage-backed securities, providing secondary market liquidity for new Hope for Homeowners loans.
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