Legislation to make the floundering Hope for Homeowners mortgage bailout program more attractive to lenders was signed into law Wednesday by President Obama, along with another measure designed to crack down on mortgage fraud.
The Helping Families Save Their Homes Act (S. 896) seeks to revive the Hope for Homeowners by offering lenders more incentives to write off losses on "underwater" mortgages so the homeowners can qualify for new FHA financing. A key provision would allow lenders to recover part of their losses if the property increases in value following the writedown.
The Hope for Homeowners program was originally touted as offering assistance to up to 400,000 financially pressed homeowners when the program was announced by the Bush Administration in October. However, only 50 homeowners have actually qualified for a refinanced mortgage under the program, due to strict eligibility requirements and terms that mortgage servicers found unappealing.
"Too many administrative and technical hurdles made it very difficult to navigate, and most borrowers didn't even bother to try," Obama said in signing the legislation. "And this bill removes those hurdles, getting folks into sustainable and affordable mortgages and, more importantly, keeping them in their homes."
Aim is to refinance underwater mortgages
The Hope for Homeowners program is designed to help homeowners who are "underwater" on their mortgage, that is, the property has declined in value so that they owe more than the home is worth. For financially stressed homeowners, walking away from such a property and allowing the lender to absorb the loss may be a more attractive option than continuing to pay the mortgage.
The revisions to the program ask loan servicers to write down qualifying mortgages to 93 percent of the home's market value, in return for refinancing under an FHA-insured loan that limits further losses. It also provides a $1,000 incentive for each mortgage modified under the program. The new legislation also provides liability protections to prevent servicers who modify a loan from being sued by unhappy investors who own the mortgage note.
Lenders may share in equity
The original program required that mortgages be marked down to 90 percent of market value and did not offer lenders an opportunity to share in any potential recovery in housing prices. Under the new law, lenders who write down a mortgage under the program may share in any recovery in the property's value up to the original value of the mortgage.
In the same ceremony, Obama also signed legislation designed to crack down on mortgage fraud by expanding the Justice Department's authority to prosecute mortgage fraud and other investment frauds related to government efforts to stem the financial crisis, and provide $490 million over two years to boost fraud investigations and prosecutions.
Bills hailed by mortgage lenders
Both bills were welcomed by mortgage industry trade associations, with both the Mortgage Bankers Association and National Association of Mortgage Brokers (NAMB) issued statements offering enthusiastic support.
"NAMB commends Congress and President Obama for drafting and signing the "Helping Families Save Their Homes Act," to help consumers who are struggling with mortgage payments or unable to obtain a mortgage at all," said NAMB President Marc Savitt. "This legislation will play an important role in the mortgage and housing industries' turnaround by enhancing mortgage credit availability, increasing mortgage fraud prevention efforts, and expanding foreclosure prevention and loan modification programs."