• Treasury Announces Federal Housing Program Enhancements
  • April 8, 2010 | Author: Dianne L. Trenholm
  • Law Firm: Alston & Bird LLP - Atlanta Office
  • On Friday, the U.S. Department of Treasury announced enhancements to the Home Affordable Modification Program (HAMP) and to Federal Housing Administration (FHA) programs.  The new changes target two specific groups of homeowners: those who are "underwater" (with mortgage balances at least 115% of the value of their homes) and those who are unemployed. 

    Targeted homeowners will be required to meet certain criteria under HAMP, such as living in an owner-occupied principal residence, having a mortgage balance of less than $729,750, owing monthly mortgage payments that are greater than 31 percent of household income and otherwise demonstrating financial hardship.  According to the announcement, the improvements are intended to “focus on providing responsible homeowners opportunities to obtain a modification or to refinance and prevent avoidable foreclosures” and to provide such homeowners assistance to “facilitate the transition to a more sustainable housing situation” when necessary. 

    The enhancements include the following:

    • For the first time, the federal housing program will help qualified, unemployed homeowners by giving them a six-month forbearance on mortgage payments while seeking new employment. Banks could charge no more than 30 percent of what a homeowner is receiving in unemployment benefits.  
    • Lenders will get incentives to offer more refinancing options to those who are paying mortgages valued higher than the current market value of their homes. To expand the use of principal write-downs, servicers will be required to consider an alternative modification approach that emphasizes principal relief, including new incentive payments for principal write-downs by servicers and investors, with the incentives being earned by borrowers and investors "based on a pay-for-success structure."
    • Relocation assistance payments to homeowners are doubled.
    • To encourage more short sales and other alternatives to foreclosure, incentives to servicers and lenders are increased, including increased incentives for extinguishment of subordinate liens. 

    These enhancements are the latest developments in the Administration’s efforts to strengthen the housing market, which have included providing support to Fannie Mae and Freddie Mac , launching a $23.5 billion Housing Finance Agencies Initiative , supporting the First Time Homebuyer Tax Credit and, through The American Recovery and Reinvestment Act of 2009 , providing over $5 billion in support for affordable rental housing and $2 billion in support for the Neighborhood Stabilization Program  to “restore neighborhoods hardest hit by concentrated foreclosures.”