Major Lenders Implement “Making Home Affordable”

Making Home Affordable, the Administration’s program to reduce foreclosures through refinancing, modification of loans held by borrowers in trouble, and lowered interest rates, is finally moving ahead with critical loan modifications after hitting a snag over how to handle secondary liens.

In just two weeks, MHA has signed up 14 major lenders, including the nation’s five largest, who have extended offers on over 55,000 trial modifications. The lenders who have signed contracts with HUD represent 75 percent of all outstanding loans in the nation.

The Home Affordable Refinance aspect of the program, which launched in March, allows borrowers whose loans are held by Fannie Mae or Freddie Mac to refinance at lower rates. To date, Fannie Mae has received over 233,000 eligible refinance applications and more than 2,150 loans have closed. About 1500 Home Affordable Refinance loans have closed and been delivered to Freddie Mac,

 The Administration estimates both the modification and refinancing initiatives programs will help an estimated seven to nine million homeowners-about three times the number of foreclosure filings last year.  The modification program requires lenders and borrowers to reduce monthly mortgage payments to a 31 percent ratio of debt to income and provides up to $1 billion in incentives to encourage lenders and servicers to participate.

Yesterday CitiMortgage, the fourth largest mortgage servicer in the United States and one of the 14 participants in MHA, announced that in the first quarter it helped ten times more distressed Citi borrowers stay in their homes than those who suffered foreclosure, a significant increase over the fourth quarter 2008 ratio of six to one. Citi said it continued to show increased success in Illinois specifically, with company initiatives keeping homeowners in their homes by a ratio of more than eight to one, compared to over five to one last quarter.

This  week the HUD Secretary Shaun Donovan and Treasury Secretary Geithner also announced an important addition to the program- new incentives to encourage lenders and borrowers to pursue short sales when modifications won’t work.

The government will simplify and streamline the process of pursuing short sales and deeds-in-lieu, which will facilitate the ability of more servicers and borrowers to utilize the program. The program provides a standard process flow, minimum performance timeframes and standard documentation, and it offers financial incentives to servicers and borrowers to pursue these alternatives to foreclosure.

 Where home price declines have been particularly severe, the government will provide lenders additional incentives for modifications. To encourage the modification of more mortgages and enable more families to keep their homes, the Administration, building on insights pioneered by the FDIC, has developed an innovative payment that provides compensation based on recent home price declines.  Together the incentive payments on all modified homes will help cover the incremental collateral loss on those modifications that do not succeed.  Payments will be linked to the rate of recent home price decline in a local housing market, as well as the average cost of a home in that market.

 See files below for more background from HUD and Treasury.



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