4th UPDATE: Obama Administration Broadens Housing Aid Efforts
15 May 2009 - 6:25AM
Dow Jones News
Amid record foreclosure filings and plummeting home prices, U.S.
government officials Thursday announced plans to broaden their
efforts to help troubled homeowners and ease the housing
crisis.
Officials announced two new programs - one aimed at giving
mortgage servicers incentives to relocate troubled homeowners to a
home they can afford and another that will provide lenders
incentives to modify loans in areas where home-price declines have
been severe.
The Obama administration in March first unveiled key details of
its $75 billion housing market rescue plan - known as the Making
Home Affordable Program - which works by paying mortgage servicers
to reduce borrowers' payments. The aim of the ambitious effort,
which was recently expanded to help lower the cost of second
mortgages as well, is to help as many as nine million homeowners
avoid foreclosure.
Despite the new efforts, U.S. foreclosure filings in April rose
to a record, according to a RealtyTrac report released
Wednesday.
Still, Treasury Secretary Timothy Geithner on Thursday said
there are welcoming signs in the housing market, pointing out that
mortgage rates are low and refinancings are up - signs that the
administration's housing efforts are starting to work.
"People want to see progress quickly, but we're seeing a lot of
progress in a very short period of time. This is an extraordinary,
comprehensive set of initiatives," he said at a news conference to
provide an update on the administration's efforts to stem
foreclosures. "We're going to keep at it until we get, again,
maximum number of people taking the maximum advantage of these
programs."
An Obama administration official later added that it could take
several months for the program to hit its full stride in terms of
servicer participation and impact on the housing market.
Under the fresh initiative administration officials unveiled
Thursday to help provide foreclosure alternatives, Treasury plans
to encourage servicers to consider a short sale or deed-in-lieu if
a borrower doesn't meet the eligibility requirements under the
government's plan to encourage loan modifications. Services could
receive incentive pay up to $1,000 for completing a short sale or
deed-in-lieu; borrowers could receive up to $1,500 in relocation
expenses.
In a short-sale, a servicer would allow the borrower to sell the
property at its current value. With a deed-in-lieu, the borrower
would be able to voluntarily transfer ownership of the property to
the servicer. Treasury said mortgage servicers have generally opted
to pursue foreclosures instead of these two complex transactions
even in cases where a short sale or deed-in-lieu would be a better
outcome for borrowers, investors and communities.
As part of the new efforts to protect against falling home
prices, the government will make payments of up to $10 billion to
encourage lenders, servicers and investors to modify rather than
foreclose. The goal is to boost the number of loan modifications in
areas of the country that have seen prices plummet drastically.
At the news conference Thursday, Geithner and Housing and Urban
Development Secretary Shaun Donovan provided an update on their
housing efforts, appearing with borrowers who have benefited from
the Obama administration's housing programs. They said that since
the Obama administration launched its efforts to address the
housing crisis, 14 servicers have now signed contracts and more
than 55,000 homeowners have received offers for loan modifications.
Additionally, they noted that government-sponsored enterprises
Fannie Mae (FNM) and Freddie Mac (FRE) have acquired thousands of
refinancings for high loan-to-value borrowers who might owe more
than their homes are worth.
Even though job loss is driving foreclosures, the
administration's housing rescue efforts should help troubled
borrowers refinance and stay in their homes, said Donovan. "A
modification or a refinancing is able to help those folks get back
to the point where they can meet their mortgage payment," he
said.
Both secretaries said they plan to remain flexible to tweaking
and enhancing their housing rescue efforts. Under the
administration's housing plan, for instance, Fannie Mae and Freddie
Mac refinance loans for borrowers who owe more than their homes are
worth. Currently, borrowers cannot owe more than 105% of the
current value of their home. However, an administration official
Thursday said Treasury and the Federal Housing Administration are
committed to regularly reviewing the regulatory reasons for that
cap. While no changes are planned, anything is possible when it
comes to program modifications, the official said.
"This is just the beginning," Geithner said at the news
conference. "We are at the beginning of progress in these
programs."
Meanwhile, National Community Reinvestment Coalition President
John Taylor, who also appeared at the press conference, said that
while the administration's housing initiatives represent the
strongest anti-foreclosure effort he has seen to date, the programs
should be mandatory.
"We're encouraged by early numbers, but more work remains to be
done to compel lenders to fully participate in the program and to
modify loans before they go into default and face imminent
foreclosure," said Taylor.
-By Maya Jackson Randall, Dow Jones Newswires; 202-862-9255, maya.jackson-randall@dowjones.com, and Jeff Bater, Dow Jones Newswires; 202 862 9249; jeff.bater@dowjones.com