White House expands housing aid program
HAMP to help unemployed and underwater homeowners

By Corbett B. Daly, Reuters, 3/26/2010
http://www.washingtonpost.com/wp-dyn/content/article/2010/03/26/AR2010032603331.html

WASHINGTON (Reuters) - The Obama administration on Friday announced a $14 billion effort to try to stem a rising tide of home foreclosures by giving lenders incentives to erase some mortgage debt and slash mortgage payments for the unemployed.

The new aid programs, which expand the scope but not the cost of the $50 billion allocated to housing rescue under the Treasury Department's Troubled Asset Relief Program, will also allow borrowers to erase mortgage debt down to a maximum of 115 percent of their home's value by refinancing through the Federal Housing Administration.

The plan comes as President Barack Obama is under increasing political pressure to change his strategy for helping struggling homeowners and stem the tide of rising foreclosures and is the second major housing initiative announced in as many months.

Delinquencies on U.S. mortgages rose to nearly 14 percent in late 2009, led by a sharp increase in seriously overdue home loans held by the most credit-worthy borrowers, U.S. banking regulators said on Thursday.

Bank whistle blower says banks f#@k over homeowners on purpose, per this ABC News report.

The new measures are a shift from the efforts announced last year, which focused on reducing interest rates for struggling borrowers who got risky loans.

The latest efforts are targeting unemployed workers and homeowners in places where home values have plunged across the board and it is increasingly making more financial sense for homeowners to walk away from their mortgage.

"This is a balance to help all those we can help in a reasonable fair way ... and do no more than is responsible to do," said Diana Farrell, a top White House economic adviser.

A major sticking point for borrowers to get modified loans has been second liens, which piggyback on to the primary mortgage.

The new program would allow mortgage investors holding those second liens to get some of their money back from a refinance through the Federal Housing Administration.

FHA chief David Stevens said that despite the increased portfolio, the agency is still on track to rebuild its capital reserves, which fell to below a congressionally mandated 2 percent last fall.

Stevens noted that the FHA has announced new measures to better manage its risk.

"So in total the FHA getting back on track, increasing capital, with all the steps we've taken, will remain on track, without question, going forward," Stevens said in an interview with Reuters.

The plan announced in 2009, known as the Home Affordable Modification Program [HAMP], has more than a million borrowers who have had their payments temporarily reduced but only around 170,000 borrowers who have received permanent modifications.

That ratio has drawn sharp criticism from both Democrats and Republicans on Capitol Hill, as well as a sharp rebuke from the watchdog overseeing the $700 billion bailout.

Ohio Democratic Representative Dennis Kucinich who sided with Obama on this week's landmark healthcare legislation, told the administration official responsible for overseeing the bailout on Thursday he had not seen any "bold, new" initiatives for underwater borrowers.

"What are we doing to help those people who owe more on their homes than the home is worth?" Kucinich asked.

The new efforts include at least three and at most six months of temporary assistance for jobless workers and incentives for mortgage servicers to write down part of the principal balance.

Recognizing the difficulties for so-called loan servicers to modify loans for unemployed workers, the administration's plan aims for lenders to cut payments on existing loans to 31 percent of a borrower's income.

The principal reduction plan would be administered under HAMP and is modeled after a principal reduction plan announced this week by Bank of America.

Under pressure from Massachusetts Attorney General Martha Coakley, Bank of America Corp said on Wednesday it would offer what could be up to $3 billion in loan forgiveness to about 45,000 troubled homeowners.

House of Representatives Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, said his panel would continue to press the four major mortgage lenders, Bank of America, JPMorganChase, Citigroup, and Wells Fargo to participate in the voluntary program.

"We will be urging the banks to show full cooperation with this plan," Frank said, noting that executives from the four major banks would appear before his panel April 13.