Chrisotpher Shearer
WASHINGTON -- The Obama administration on Tuesday will unveil a fresh set of incentives for mortgage servicers to help strapped homeowners, a senior administration official told Dow Jones Newswires.
Under a new program, the government will pay mortgage servicers $500 upfront and $250 a year for three years for successfully modifying a second mortgage, such as home equity loan.
Separately, the administration will unveil a schedule of incentives for holders of second mortgages to extinguish those liens voluntarily, the official said.
The administration will also announce a set of incentives for servicers and lenders participating in the Hope for Homeowners program, which aims to restore homeowners' lost equity by encouraging lenders to write down loan principal.
The announcements, which will come jointly from the Department of Housing and Urban Development and Treasury, are expected updates on the administration's plan to right the housing market. "We are tackling one of the challenges we recognized," the official said.
The issue of second mortgages has been dogging policymakers ever since the onset of the foreclosure crisis. A large share of troubled borrowers also have a second mortgage on their home, which is typically owned by a different investor than the first mortgage. Such borrowers may not be able to afford their monthly payments if only the first mortgage is modified.
The administration's effort on second mortgages is also aimed at soothing the concerns of investors, who have been crying foul over the Obama housing plan's incentives for servicers. They argue the first mortgage shouldn't be modified if the second one is left untouched. They also contend the banks that dominate mortgage servicing are conflicted because they own more than $400 billion of second mortgages. Such banks stand to gain from modifying the first mortgage because the second mortgage is more likely to be repaid once the homeowner is saved from foreclosure.
Some of the largest U.S. banks, including Bank of America, Wells Fargo and J.P. Morgan Chase, have already agreed to sign on to the program, the official said. The rest of the industry will be encouraged to participate.
Under the program, servicers must agree to modify all second mortgages where the first mortgage has already been modified. To qualify for payment, servicers must extend the term of the second mortgage and reduce the interest rate to match the first mortgage. Then, the government will share the cost with the servicer of reducing the rate down to 1% for amortizing loans and 2% for interest-only loans.
Borrowers will receive payments of up to $250 per year for as many as five years if they stay current on the loan. The payments will be applied to pay down principal on the first mortgage.
Changes to the Hope for Homeowners program are designed to place it in line with the taxpayer-assisted loan modifications. Launched last fall to help troubled borrowers refinance into more affordable government-backed loans, it has failed to gain traction due to onerous borrower requirements and the nagging problem of second liens.
The administration will announce Tuesday a $2,500 upfront payment to servicers that refinance borrowers into the program. Meanwhile, lenders that originate the new loans will receive $1,000 a year for three years, if the loans stays current.
Legislation to revamp the program is currently pending in Congress. Once those legislative fixes are made, HUD will work on creating a program to extinguish the second liens, the official said.
Comments(0)