Friday, January 27, 2012

Mortgage modification program expanded to investors, others

Proposed changes to the Home Affordable Modification program would make mortgage modifications available to owners or rental properties and others. (Justin Sullivan/Getty Images) By Mary Ellen Podmolik Tribune reporter 5:05 p.m. CST, January 27, 2012 The Obama administration on Friday announced it would significantly broaden the pool of consumers eligible for mortgage modifications by opening its program to owners of rental properties and homeowners burdened by medical and credit card bills and second mortgages. Under an expansion of the Home Affordable Modification Program, investors can seek mortgage loan modifications for rental properties, regardless of whether the home is occupied by a tenant or it is vacant but the owner plans to rent it. Previously, only owner-occupants were eligible for loan modifications under the government's plan, but officials said they decided to take this step because foreclosed rental properties were having a particularly detrimental effect on low- and moderate-income renters. "The whole purpose of HAMP is to try and prevent foreclosures," said Treasury Assistant Secretary Tim Massad in a conference call with reporters Friday afternoon. "We're expanding it to investor-owned properties for the same reason. If your neighbor is foreclosed on, whether they're an owner or a tenant, that affects you and all your neighbors. We're allowing them to get modifications. They still have to prove a hardship and go through a protocol that proves this is a good use of taxpayer money." Roughly 700,000 rental properties nationally may be eligible for loan modifications, he added. "They're finally recognizing that this is a part of the housing market that needs stabilization," said Geoff Smith, executive director of DePaul University's Institute for Housing Studies. "These small multifamily buildings make up a big part of the housing stock in Chicago so any effort to stabilize them would be helpful. But one of the reasons that HAMP didn't target rentals was at some level these are businesspeople and why would you want to incentive them for taking too much risk on an investment." Federal officials also said HAMP would begin evaluating borrowers who may face large medical, credit card or second lien payments but up to now have been ineligible for mortgage modifications because the debt-to-income ratio on their first mortgages was below 31 percent. HAMP, which was set to expire in December, now has been extended until Dec. 31. 2013. There will be no additional costs to taxpayers for the expanded program, officials said. It will be funded from the $29 billion already set aside mortgage modification efforts. Part of the administration's Making Home Affordable effort that was announced shortly after President Barack Obama took office, HAMP has been criticized as falling woefully short of its goal of helping 3 million to 4 million homeowners. Of the more than 1.7 million trial mortgage modifications begun under the program since its March 2010 start, only about 43 percent had resulted in permanent loan modifications through November. The government has withheld $131 million in servicer incentive payments from Bank of America and JPMorgan Chase for poor compliance with the program. Officials declined Friday to estimate how many additional homeowners would be helped as a result of the program changes. Also announced was a tripling of the financial incentives awarded to mortgage investors whose modifications include principal writedowns in cases where the homeowner owes significantly more on the mortgage than the value of the underlying property. The current rate of between 6 cents and 21 cents on the dollar will be increased to between 18 and 63 cents. Officials said they had already briefed mortgage servicers on the new incentive plan. Principal reduction incentives also will be offered to Fannie Mae and Freddie Mac if they use them in loan modifications on mortgages they own or insure. In a statement, the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, said it will study the new incentives but it previously concluded "that principal forgiveness did not provide benefits that were greater than principal forbearance." Writing down mortgage balances has been long-sought by consumers, who question why they continue to pay mortgages on properties when there is little chance of regaining any equity in the homes because of the housing crash. And while the administration advocated principal writedowns, there were rarely given and are no longer tracked in the government's monthly report on the HAMP program. In the Chicago area, prices are down some 30 percent since they peaked in September 2006. Homeowners "shouldn't have to sit and wait for the housing market to hit bottom" before finding some relief, said Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development. In his State of the Union speech Tuesday President Obama said he planned to seek legislation that would further widen home mortgage refinancing programs. Friday, officials said details of that proposal were forthcoming. Copyright © 2012, Chicago Tribune

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