HAMP, FHA Program Reforms Provide Extra Opportunities for Strained Homeowners

Adjustments to the Home Affordable Modification Program (HAMP) and programs run by the Federal Housing Administration (FHA) have been put in place to give added relief and assistance to responsible homeowners.

These modifications are intended to give mortgage servicers and originators more flexibility to work with homeowners who are unemployed due to the weak economy, and with those whose mortgage payments exceed their home’s value because of sharp drops in housing markets.

The $50 billion in federal funding for the program changes comes from the Troubled Asset Relief Program (TARP), while the private sector will also share the costs. As many as 4 million homeowners may be helped by these changes, effective until December 2012.

Overview

To encourage stability in the housing markets and in homeowners’ personal lives, the FHA is putting forward a comprehensive plan that includes initiatives for both local and state housing agencies, community development programs, tax credits for homebuyers, refinancing and mortgage modification options, and support for the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.

The Administration is committed to giving responsible homeowners the chance to keep their homes while they seek a new living situation that is more sustainable or get caught up with their expenses. With mortgage rates falling to all-time lows, and with these modification programs in effect, over four million homeowners have been able to refinance their mortgages at levels that they can afford. The results have been more than $7 billion in annual savings, with a million homeowners saving over $500 per month.

While this news is encouraging, challenges still lie ahead. The HAMP program had a slow start because servicers were hesitant to implement it.

The FHA also recognizes that not everyone can or should be helped under these programs, especially not investors or speculators, nor those people who recklessly purchased million-dollar homes or vacation homes. The goal instead is to target responsible homeowners and give them opportunities to refinance or modify their mortgages, and to find a more sustainable living arrangement where possible.

To qualify for a modification under the HAMP program, homeowners must live in their owner-occupied principal residences, with a mortgage balance no greater than $729,750 and a monthly mortgage payment at an unaffordable level (defined as higher than 31% of the homeowner’s income), and must be able to demonstrate that financial hardship exists.

Meanwhile, the FHA refinance options are in place to restructure loans for certain families who are paying more than their home value. This voluntary program is for responsible homeowners current on their mortgage, and is expected to lead to more stabilization in housing markets, households and communities.

Background on Housing Program Initiatives

The Homeowner Affordability and Stability Plan came about to address the declines in housing markets that caused home values to drop on responsible American homeowners through no fault of their own. Amid a shrinking credit market, these homeowners had no easy way to refinance their mortgages to lower rates.

However, with this plan in effect, greater housing stability has come about. Here are the actions the FHA has undertaken to boost housing markets nationwide:

• initiatives to provide access to affordable mortgage credit
• support for Fannie Mae and Freddie Mac to maintain access to affordable credit
• More than $1.4 trillion of agency mortgage-backed securities have been purchased by the Federal Reserve and the Treasury, allowing mortgage rates to remain at historic lows and allowing homeowners access to credit for refinancing mortgages and buying new homes.
• The FHA has also added to the liquidity in the purchasing of houses during a period of decline in private lending.

Other actions that have aided homeowners with refinances, mortgage modification and foreclosure prevention have included:

• expanding flexibility in refinancing for loans from Fannie Mae and Freddie Mac, especially for borrowers who have negative equity
• the First Time Homebuyer Tax Credit to aid responsible families in buying homes
• a Housing Finance Agencies (HFA) Initiative, valued at $23.5 billion, to help finance agencies at state and local levels in 49 US states
• over $5 billion in support for affordable rental housing through tax credit programs for low-income housing, plus $2 billion to support the Neighborhood Stabilization Program, which will reinvigorate those neighborhoods that have suffered the highest numbers of foreclosures.

Additionally, the FHA allocated $1.5 billion for the HFA Hardest Hit Fund, to encourage foreclosure prevention programs designed to target and fit the specific needs of these very strained neighborhoods.