HUD Rolls Out Mortgage Assistance; Are Lenders Ready?

The U.S. Department of Housing and Urban Development on Wednesday touted the availability of lawmakers’ latest attempt to stanch the nation’s foreclosure crisis, called the Hope for Homeowners program. Authorized by the Economic and Housing Recovery Act of 2008, the HFH program is designed to provide a refinancing option for troubled borrowers that cannot afford the terms of their original loan.

“For families struggling to keep up with their mortgage payments, this program will be another resource to refinance into a loan they can afford,” said HUD Secretary Steve Preston.

Most of HW’s sources have said they question how much of a resource the program really will be; while HUD officials relented and will allow lenders to put borrowers on a “trial” of the HFH program before fully refinancing a troubled loan and taking a significant principal write-down, other qualification barriers may limit participation in the program.

In particular, a so-called “upfront mortgage insurance premium,” designed to protect taxpayers from losses, is likely to make the loans more costly than other loans a borrower might otherwise qualify for, many of HW’s sources said. HUD levies a 3 percent upfront premium when borrowers are put into the HFH program, and charges 1.5 percent each year thereafter.

Lenders choosing to move borrowers into an FHA-endorsed loan under Hope for Homeowners will need to write off principal on the original loan to 90 percent of a current appraised value, including the upfront premium payment.

HUD officials also put a provision in place that allows prior lien holders a chance at recovering some of their prior secured interest, and ditched an earlier provision that would have more directly enticed second lien holders to agree to write off their interest in the property; under the program unveiled Wednesday, a homeowner will share the equity with FHA on a sliding scale ranging from a 100 percent FHA share after the first year to a minimum of 50 percent after five years.

A lien holder that previously held the highest priority will receive payment up to a proportion of its original interest, not to exceed the amount of available appreciation. This type of delayed payoff will take place until all prior lien holders are satisfied or the amount of available appreciation is exhausted, whichever comes first, HUD said.

Lenders ready?
Despite HUD’s announcement of the program, HW’s sources said it could yet be a few days until servicers are capable of rolling of managing borrowers into the new program. One borrower, who asked her name not be used in this story, alleged that her servicer told her that “details on Hope for Homeowners aren’t available just yet” when she called to ask about the program this morning.

HUD is suggested Wednesday that troubled borrowers call their servicers for more information on the program.

“Most of the larger servicers are still digesting the program,” said one senior bank executive, under condition of anonymity. “They’ll likely be telling interested borrowers to call back in a few days, once their systems can be updated.”

Given the likely higher cost of the program, and the recently-loosened guidelines for a separate FHA refinancing plan called FHASecure, it’s not likely that such short delays will present a problem for most borrowers in need, one loss mitigation manager told HW.

“It’s another tool, like HUD keeps saying, which is a very good thing,” said a loss mitigation manager, on condition of anoymity. “We’ve met internally here and see some possible lift from the program, especially since we’ll be able to trial a refinance like we’d trial a loan mod. But it probably won’t be as huge as everyone seems to be hoping.”