ama administration hopes [u][link=http://www.treas.gov/press/releases/reports/042809secondlienfactsheet.pdf]new guidelines[/link][/u] for its Making Home Affordable program (MHA) will help to improve two of the plan's most apparent drawbacks: the lack of instruction on how to manage second liens and the plan's limited aid for underwater borrowers. ‘With these latest program details, we're offering even more opportunities for borrowers to make their homes more affordable under the administration's housing plan," says Treasury Secretary Tim Geithner. "Ensuring that responsible homeowners can afford to stay in their homes is critical to stabilizing the housing market, which is, in turn, critical to stabilizing our financial system overall. Every step we take forward is done with that imperative in mind." By the government's estimation, up to 50% of at-risk mortgages have second liens. Under the new guidelines, when a Home Affordable Modification is initiated on a first lien, servicers must automatically reduce payments on the associated second lien. For amortizing loans, the Treasury will share the cost of reducing a second mortgage's interest rate to 1%. For interest-only loans, the government will share the cost of reducing the interest rate to 2%. After five years, the interest rates will step up to the then-current interest rate on the modified first mortgage. Servicers will receive a $500 up-front payment for successful modifications of second mortgages and $250 per year for three years, so long as the modified first loan stays current. Borrowers stand to receive $250 a year for up to five years – payments that will be applied to pay down the principal of the first mortgage. The goal of these payments is to help borrowers restore equity in their homes. Alternatively, lenders and investors will have the option to extinguish the second lien in return for larger payments under a pre-set formula determined by the Treasury. This will allow second lienholders to target principal extinguishments to the borrowers where extinguishments are most appropriate, the Treasury says. Separately, the administration has taken steps to incorporate the Federal Housing Administration's (FHA) Hope for Homeowners (H4H) into Making Home Affordable. Under the changes announced, when evaluating borrowers for a Home Affordable Modification, servicers will be required to determine eligibility for a H4H refinancing. Where H4H proves to be viable, the servicer must offer the H4H refinance at the same time as the trial modification offer. Servicers and lenders will receive pay-for-success payments for Hope for Homeowners refinancings similar to those offered for Home Affordable Modifications. Servicers can receive a $2,500 up-front payment for a successful refi, and lenders that originate new H4H refinanced loans can receive up to $1,000 per year for up to three years (assuming the loan stays current). These additional supports are designed to work in tandem and take effect with the expanded program under consideration by Congress. The Helping Families Save Their Homes Act of 2009 passed the House of Representatives and has been introduced in the Senate. The administration says it supports legislation to strengthen H4H so that it can function effectively as an integral part of the Making Home Affordable Program. SOURCE: T
