(Updates to add joint comment from the Financial Services Roundtable and Housing Policy Council)
By Meena Thiruvengadam Of DOW JONES NEWSWIRES WASHINGTON -(Dow Jones)- In an attempt to encourage lenders to cut deals with financially strapped homeowners, the U.S. Department of Housing and Urban Development has unveiled a new version of its Hope for Homeowners program.
Under revisions announced Wednesday to HOPE, as the program is known, lenders could write certain mortgages down to a maximum of 96.5% of a home's value, an increase from 90% previously, reducing the losses lenders would face in helping homeowners avoid foreclosure. The change would only apply to borrowers whose total household debt payments are no more than 43% of gross income. Additionally, the revisions would permit lenders to extend mortgage terms from 30 to 40 years to allow for lower monthly payments over the a loan's life and immediately payoff subordinate lienholders to release their liens.
"These changes will not perfect the Hope for Homeowners program, but they will improve it greatly," HUD Secretary Steve Preston said at a luncheon hosted by the National Press Club. "We think this is a big step forward, and we hope this will move the needle of participation."
More changes are likely in the works for HOPE, which is scheduled to last through Sept. 30, 2011.
House Financial Services Committee Chair Barney Frank, D-Mass., and several industry groups commended the revisions.
"By appreciably increasing the number of borrowers who can participate in this program, Hope for Homeowners should become a more widely employed program to further the mutual goal of the securitization industry and the government to prevent avoidable foreclosures," said Tom Deutsch, deputy executive director of the American Securitization Forum.
Frank called the changes helpful, saying they reflect "a commitment to meeting the need for more aggressive action to diminish foreclosures." Congress has in recent weeks criticized the U.S. Treasury Department for not doing more help homeowners fighting foreclosure despite gaining congressional approval of a $700 billion bailout package aimed at stabilizing financial markets.
In a joint statement, the Financial Services Roundtable and The Housing Policy Council called the changes vital, but encouraged the department not to abandon other programs to assist at-risk homeowners."This will be a continuing process and we encourage HUD to remain open to additional suggestions on Hope for Homeowners and to take other steps such as continuing the FHA Secure program," they said.
HOPE, launched Oct. 1, has failed to garner the embrace of lenders and mortgage servicers reluctant to take on the losses participation in the program would require.
"Because of strict guidelines and a number of unique and specialized requirements in the original law, few lenders have actually signed up and few borrowers have submitted applications," Preston said.
He was unable to provide a number of applicants to the program or a specific number of homeowners who have been helped by it to date.
The program, which provides for the refinancing of loans of up to $550,440, has been criticized for not doing enough to prevent foreclosures. As of late October, only 83 applications had been received for the program, a Federal Housing Administration official said.
Preston noted many industry participants say the level of required write downs was a deterrent that made foreclosure a more attractive option for banks facing losses on the loans.
Borrowers, too were confused by some aspects of the original program, which required subordinate lienholders to release liens in exchange for a share of the price appreciation when a home is sold. That requirement created "uncertainty for the lienholder and is difficult to manage," Preston said.
The government had predicted HOPE could provide assistance to as many as 400,000 people by insuring up to $300 billion in new loans, but in its first two weeks it helped just 42 homeowners.
"The program is expensive to use which will limit its reach," Preston said. "As a result, we continue to look at options to reduce the fees in the program."
Lenders must currently pay an upfront mortgage insurance fee of 3% to participate in addition to a monthly fee of 1.5%.
"Even as we continue to expand our response, expectations often are unrealistic," Preston said. "Many people have not accepted the implications of a large supply-demand imbalance in many markets driven both by foreclosures and overbuilding. In addition, some foreclosures cannot be prevented. Many people have much more debt of all kinds than they can actually afford."
-By Meena Thiruvengadam, Dow Jones Newswires; 202-862-6629; meena.thiruvengadam@dowjones.com
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(END) Dow Jones Newswires
November 19, 2008 16:55 ET (21:55 GMT)

Publié le 19 novembre 2008 Copyright © 2008 Dowjones