President Obama Widens Government Foreclosures Program

by Donald Hanz on Foreclosure Help

Now, President Obama has widened the scope of his government foreclosures program by adding second mortgages to the program and directing more distressed homeowners to the revised Hope for Homeowners program which was launched in October last year.

During the housing boom, many homeowners took second mortgages as lenders enticed borrowers with mortgage loans that had little or no down payments. About 50 percent of distressed borrowers have second mortgages, according to the federal government.

The second loans have been making modifications more complicated both for borrowers and lenders under Obama’s government foreclosures program. Some lenders refuse to modify first mortgages because the second mortgages were sustained. For many lenders, the second mortgages put their debts to unaffordable levels.

Under the expanded government foreclosures program, rates for second mortgage loans will be cut down to 1 percent for loan payments that cover principal and interest and to 2 percent for loan payments that cover only interest. The program will help mortgage lenders by subsidizing the rate reduction.

The lenders will also be enticed with $500 for every loan modification and $250 every year of 3 years that the borrower sustains the loan. Borrowers would be given up to $250 every year for 5 years that they can use to pay their first mortgage.

The government foreclosures program also pays investors if they eliminate the second lien for troubled borrowers. Investors would be paid between 4 cents to 12 cents for loans less than 6 months in default and 3 cents per dollar on loans in default by more than 6 months.

Obama’s government foreclosures program has now also incorporated the Hope for Homeowners program, which was launched by the Bush administration last year. Currently, the program is being reviewed by Congress. Obama is asking lenders to offer the Hope for Homeowners program as another option for borrowers.

The Obama administration decided to add the Hope program to address the needs of homeowners with underwater loans.

Lenders rejected the Hope for Homeowners program because it compelled them to reduce principal balances to 90 percent of the home’s current market value. Legislators are changing the reduction requirement to 93 percent of the home’s current market value and reducing the loan modification fees.

Under this revised government foreclosures program, servicers will be given $2,500 for every loan modification while lenders will be given up to $1,000 per year for up to 3 years that the modified loan is current.