President Obama has signed into law legislation intended to resurrect the Hope for Homeowners refinance program by relaxing eligibility requirements and providing incentive payments to loan servicers and originators.

The Hope for Homeowners loan refinance program was supposed to allow as many as 400,000 upside-down borrowers to refinance into more affordable FHA-backed loans by late 2011.

But lenders were required to make hefty principal write-downs, and only a few dozen homeowners have been able to take advantage of the program since it was launched in October. Former Secretary of Housing Steve Preston complained that Congress hobbled the program by making it too restrictive.

S 896, the Helping Families Save Their Homes Act, lowers Hope for Homeowners program fees, streamlines borrower certification requirements, and allows the the Department of Housing and Urban Development to make incentive payments to participating loan servicers and originators.

Before signing the bill, Obama said administrative and technical hurdles made Hope for Homeowners "very difficult to navigate, and most borrowers didn’t even bother to try."

Obama’s Secretary of Housing, Shaun Donovan, issued a statement saying the legislation will make the Hope for Homeowners program a "more flexible and attractive option for homeowners and lenders alike."

The bill received overwhelming support in the Senate, where it passed May 6 in a 91-5 vote. All "no" votes were cast by Republicans. The Senate version of the bill omitted language in a version of the bill passed by the House on March 5 that would have allowed bankruptcy judges to modify troubled borrowers’ mortgages to keep them out of foreclosure.

The House voted this week 367-54 to approve the bill as amended by the Senate, with all but three votes against the bill cast by Republicans.

S 896 also creates a legal "safe harbor" for loan servicers who modify loans, protecting them from lawsuits by investors in mortgage-backed securities — a move that’s expected to bolster the Obama administration’s Making Home Affordable initiative, which seeks to help 9 million distressed homeowners negotiate loan modifications or refinance to avoid foreclosure.

The Center for Responsible Lending projects that 2.4 million homes will be foreclosed on in 2009, with up to 9 million foreclosures through 2012. Those foreclosures will put downward pressure on home prices, with 69.5 million homes seeing declines averaging $7,200 per home, CRL projects in an analysis relying on data from Credit Suisse, Moody’s, and the Mortgage Bankers Association.

Obama also signed into law Wednesday S 386, a bill that provides additional funding to the FBI and Justice Department to step up investigations of mortgage and financial fraud, and close legal loopholes that have prevented federal prosecutors from bringing fraud and money laundering charges against many mortgage lenders (see story).


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