The President released his new home modification program with the hope it will do better than the last one called HAMP. HAMP was to modify three million mortgages to make them more affordable. The figure was under one million, and the plan was called a failure.
The latest effort is part of the overall “Blueprint for an America Built to Last” project
The new program is meant to save the average borrower helped under plan by $3,000 a year. The homeowners must be “responsible”, which is ultimately impossible to determine. Some experts consider the plan a moral hazard because homeowners who do not qualify will attempt to gain access to lower payments as a means to cut mortgage costs which they could easily afford. In other words, the program could fall victim to frauds.
Since the program is not free, the President will face resistance, particularly from Republicans anxious to cut the deficit and avoid expensive stimulus programs
The new plan includes
• Broad Based Refinancing to Help Responsible Borrowers Save an Average of $3,000 per Year: The President’s plan will provide borrowers who are current on their payments with an opportunity to refinance and take advantage of historically low interest rates, cutting through the red tape that prevents these borrowers from saving hundreds of dollars a month and thousands of dollars a year. This plan, which is paid for by a financial fee so that it does not add a dime to the deficit, will:
o Provide access to refinancing for all non-GSE borrowers who are current on their payments and meet a set of simple criteria. o Streamline the refinancing process for all GSE borrowers who are current on their loans. o Give borrowers the chance to rebuild equity through refinancing.
• Homeowner Bill of Rights: The President is putting forward a single set of standards to make sure borrowers and lenders play by the same rules, including:
o Access to a simple mortgage disclosure form, so borrowers understand the loans they are taking out. o Full disclosure of fees and penalties. o Guidelines to prevent conflicts of interest that end up hurting homeowners. o Support to keep responsible families in their homes and out of foreclosure. o Protection for families against inappropriate foreclosure, including right of appeal.
• First Pilot Sale to Transition Foreclosed Property into Rental Housing to Help Stabilize Neighborhoods and Improve Home Prices: The FHFA, in conjunction with Treasury and HUD, is announcing a pilot sale of foreclosed properties to be transitioned into rental housing.
• Moving the Market to Provide a Full Year of Forbearance for Borrowers Looking for Work: Following the Administration’s lead, major banks and the GSEs are now providing up to 12 months of forbearance to unemployed borrowers.
• Pursuing a Joint Investigation into Mortgage Origination and Servicing Abuses: This effort marshals new resources to investigate misconduct that contributed to the financial crisis under the leadership of federal and state co-chairs.
• Rehabilitating Neighborhoods and Reducing Foreclosures: In addition to the steps outlined above, the Administration is expanding eligibility for HAMP to reduce additional foreclosures, increasing incentives for modifications that help borrowers rebuild equity, and is proposing to put people back to work rehabilitating neighborhoods through Project Rebuild.
The plan is not free