Obama Administration Unveils Guidelines For Mortgage Modifications
05 March 2009 - 2:11AM
Dow Jones News
The Obama administration Wednesday unveiled key guidelines for
its housing market rescue plan that should enable loan servicers to
immediately start modifying eligible mortgages.
"Two weeks ago, the president laid out a clear path forward to
helping up to 9 million families restructure or refinance their
mortgages to a payment that is affordable now and into the future,"
Treasury Secretary Timothy Geithner said Wednesday in a statement.
"Today, we are providing servicers with the details they need to
begin helping eligible borrowers."
The administration's new housing rescue effort includes a
program aimed at reducing the amount homeowners owe per month.
Under the program, the lender will have to first reduce monthly
payments on mortgages so that the borrowers' monthly mortgage
payment is no greater than 38% of his or her income. The program
will then match further reductions in monthly payments dollar-for
dollar from 38% down to 31% debt-to-income ratio for the
borrower.
The modified payments will be kept in place for five years and
the loan rate will be capped for the life of the loan, Treasury
said in technical documents provided Wednesday morning. After five
years, "the interest rate can be gradually stepped-up by 1% per
year to the conforming loan survey rate in place at the time of the
modification."
Treasury said that in order to reach that 31% debt-to-income
ratio level, interest payments will first be reduced down to as low
as 2%.
Meanwhile, servicers will receive an upfront fee of $1,000 for
each eligible modification meeting guidelines established under
this initiative. Servicers will also receive "pay for success"
fees, as long as the borrower is successful at staying in the
program, of $1,000 each year for three years, said Treasury.
Additionally, Treasury said the plan will include an incentive
payment of $1,500 to mortgage holders and $500 for servicers for
modifications made while a borrower at risk of imminent default is
still current on their payments. As long as the borrower stays
current on his or her payments, he or she can get up to $1,000 each
year for five years, the department said.
Treasury added that Freddie Mac will audit compliance for the
housing program.
Loans originated on or before Jan. 1, 2009 are eligible for the
"Home Affordable Modification" program. Treasury said modifications
can start from now until Dec. 31, 2012. Loans can be modified only
once under the program.
-By Maya Jackson Randall, Dow Jones Newswires; 202-862-9255;
maya.jackson-randall@dowjones.com