Government Triples Payout to Servicers for Principal Reduction Under Revamp of HAMP
The Obama Administration has announced additional enhancements to the Making Home Affordable Program, including the Home Affordable Modification Program (HAMP). The Obama Administration has made a commitment to support American homeowners by providing refinancing opportunities for responsible homeowners, transitioning foreclosed properties into rental housing to help reduce the overhang of unsold homes, and providing states hardest-hit by the foreclosure crisis with resources to develop relief programs that work for their communities.
The Making Home Affordable Program deadline will be extended for an additional year, through Dec. 31, 2013. This date conforms to the extended deadline for HARP. The U.S. Department of the Treasury will also triple the incentives provided to investors who agree to reduce principal for borrowers by paying from .18 to .63 cents on the dollar, depending on the degree of change in the loan-to-value (LTV) ratio.
HAMP borrowers who have loans owned or guaranteed by the government-sponsored enterprises (GSEs)—Fannie Mae or Freddie Mac—do not currently benefit from principal reduction loan modifications. To encourage the GSEs to offer this assistance to underwater borrowers, Treasury has notified the GSEs’ regulator, the Federal Housing Finance Agency (FHFA), that it will pay principal reduction incentives to both Fannie Mae or Freddie Mac if they allow servicers to forgive principal in conjunction with a HAMP modification.
"Fannie Mae and Freddie Mac currently have 470,000 permanent HAMP modifications on their books, but also have active another 530,000 non-HAMP modifications since 2009, or roughly one million total," said FHFA Acting Director Edward J. DeMarco. "The GSEs have also completed one million nonmodification foreclosure prevention actions, ranging from forbearance plans to short sales, for
a total of some two million actions that have helped homeowners in trouble avoid foreclosure and,
in most cases, keep their home."
In response to the announcement of the HAMP expansion, FHFA has announced the following with regards to the GSEs:
►Both Fannie Mae and Freddie Mac will extend their use of HAMP Tier 1 as the first modification option through 2013 in line with the Treasury’s HAMP extension.
►Fannie Mae and Freddie Mac will continue in their respective roles as financial agents for Treasury in implementing the changes announced.
►The HAMP Tier 2 option is based on the GSEs’ standard modification that FHFA announced and the enterprises implemented last year under the Servicing Alignment Initiative, meaning Fannie Mae and Freddie Mac will not need to adopt further changes to be in alignment with HAMP Tier 2.
►FHFA has been asked to consider the newly available HAMP incentives for principal reduction. FHFA recently released analysis concluding that principal forgiveness did not provide benefits that were greater than principal forbearance as a loss mitigation tool.
“HOPE NOW is pleased that the Obama Administration has reviewed its existing HAMP program and decided that expanding it to reach more homeowners and extending it for another year is the appropriate course of action," said Faith Schwartz, executive director of HOPE NOW, a voluntary, private sector alliance of mortgage servicers, investors, mortgage insurers and non-profit counselors. "We have worked very closely with Making Home Affordable since its inception. HAMP has not only helped nearly a million distressed homeowners nationwide, it has established a standardized process for allowing mortgage servicers to determine the proper solution for each individual case, whether it be a HAMP modification, proprietary modification or short term solution."
HAMP has helped more than 900,000 U.S. homeowners permanently modify their mortgage loans, resulting in a median savings of more than $500 every month in most cases. Since December of 2009, 80 percent of proprietary modifications have included reduced principal and interest payments and 60 percent of proprietary modifications have had those payments reduced by 10 percent or more.
"This initiative shows that President Obama’s strong language on the foreclosure crisis and holding bankers accountable during his State of the Union speech is more than mere rhetoric," said Richard L. Trumka, president of the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO). "The expansion of principal reduction alternatives to foreclosure complements the President’s new working group of state and federal officials who are investigating bank wrongdoing in mortgage-backed securities. Homeowners who have been harmed by fraudulent bank practices must receive real relief in the form of meaningful principal reduction on their mortgages."
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