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Posted by on Jan 27, 2012 in Bailout, Loan Mods, Principal Reductions | 5 comments | Print Print

Treasury Backs Principal Reduction

Thank you taxpayers!  From HW:

The Treasury Department will triple payments to mortgage investors for reducing borrower principal through an expanded Home Affordable Modification Program announced Friday.

Officials announced several critical changes to HAMP, including an enrollment extension to Dec. 31, 2013, from its original expiration date at the end of this year.

The Treasury will also require servicers to factor in second liens and other obligations in the debt-to-income ratio calculation. Previously, if a borrower’s first-lien mortgage monthly payment was below 31% of the income, the borrower was deemed ineligible. Factoring other debts to the DTI evaluation will expand the pool of borrowers who could receive the assistance.

To combat blight, officials said they would also expand HAMP to investors who are renting properties to tenants.

Since HAMP launched in March 2010, more than 900,000 permanent modifications have been conducted. The Treasury originally estimated the program to reach between 3 million to 4 million borrowers. As of Dec. 1, less than 1 million were estimated to be eligible for the program under past rules.

Of the modifications already given, roughly 36,400 resulted in reduced principal as of Dec. 1. The Treasury paid between six and 21 cents to the investors for each dollar forgiven under HAMP, but that will grow to between 18 and 63 cents, under the rule changes.

In a conference call Friday, Treasury Assistant Secretary Tim Massad would not estimate how many borrowers would be eligible after the changes, but he did say mortgage servicers were signaled some expansion, even for principal reduction.

“We have previewed the changes with the servicers,” Massad said. “We got a very positive initial reaction.”

Department of Housing and Urban Development Secretary Shaun Donovan said in the conference call Friday that the Treasury would make these payments to Fannie Mae and Freddie Mac if they participate in the principal reduction program.  To date, the GSEs have not committed to such a program.

Both GSEs owe the Treasury $151 billion in bailouts, and their regulator the Federal Housing Finance Agency said a wide-scale principal reduction program would cost Fannie and Freddie $100 billion.

Of the $29.9 billion allocated for HAMP and other housing programs, the Treasury has spent only $2.3 billion. The Treasury still owes another $9 billion to $10 billion for the modifications already done, Massad said.

Donovan renewed calls for servicers to ramp up principal reductions, and reiterated that they would be a main tool in crackdowns stemming from the ongoing foreclosure settlement talks and the securitization investigations launched this week.

“These changes aren’t going to solve all the problems in the housing market, but they shouldn’t have to wait for the market to hit bottom before getting some relief,” Donovan said.

5 Comments

  1. The Fed and the WH are determined to refi millions of mortgages into lower rates. As investors we can suck it up or suck it down but either way it’s gonna happen.

  2. what kind of investor (with tenants) has a DTI over 31%?

    besides a really, really stupid one…

  3. The dictator circling the bowl in the polls.

    You ain’t seen nothing yet.

  4. So the government is going to be a landlord now?

    How is this going to affect us buyers? Isn’t this going to reduce the already low supply of affordable homes?

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