Following in the footsteps of the Obama administration’s Housing Affordability and Stability Program (HASP) announced in February, the Treasury and Housing and Urban Development Department will offer an additional program to help homeowners with second mortgages stay out of foreclosure. The original guidelines of the Housing Affordability and Stability Program excluded second mortgages from being modified or refinanced.
The new program will be set up with a structure similar to HASP with cash rewards to mortgage servicers, lenders, and borrowers when modified second mortgage payments are paid on schedule. By providing the cash rewards it is hoped that lenders will make it easier to restructure the second mortgages. Eligibility standards for the new plan will also bear a similarity to HASP in that the program will be initiated by Fannie Mae and Freddie Mac.
The new plan, which should be available to borrowers in May, will allow for second mortgages to be either automatically or independently adjusted when a homeowner’s first mortgage is modified under the HASP guidelines. Estimates are that one out two homeowners that had their mortgage modified under the HASP guidelines will be eligible to modify their second mortgages as well.
The new program is also attempting to resuscitate the Bush administration’s failed Hope for Homeowners mortgage-aid program. That program’s intent was to assist borrowers to refinance their mortgages into government-backed Federal Housing Administration loans but only a handful of borrowers ever participated in it. To kick start Hope for Homeowners the new plan adds an upfront payment of $2,500 to loan servicers trying to bring on board with the plan.
The initiative is the most recent in a series of initiatives attempting to slow the melt down in home values and the rise in foreclosures. Delinquencies rose to 7.88% of all mortgages in the last quarter of 2008, the highest number on record since they started being tracked in 1972 according to the Mortgage Bankers Association in Washington. Mortgages in foreclosure rose by almost 50% from one year earlier, increasing to 3.3% from 2.4% of all mortgages outstanding.
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