Thursday, March 25, 2010

Treasury to Announce Updates on Housing Policy and Principal Reduction

by Bill McBride on 3/25/2010 05:55:00 PM

Senior administration officials will update reporters on the Obama administration’s housing policy on Friday at 10 AM ET. This will include Michael Barr and Herbert Allison, both from Treasury, FHA Commissioner David Stevens, and Diana Farrell of the National Economic Council.

Complete details will be available tomorrow, but I've been told ...

1) Principal reduction will be optional, but it will at the top of the waterfall.

Note on current "Waterfall": Right now according to HAMP guidelines, "servicers must apply the modification steps enumerated below in the stated order of succession until the borrower’s monthly mortgage payment ratio is reduced as close as possible to 31 percent ...

Step 1: Capitalization of accrued interest and expenses.

Step 2: "Reduce the starting interest rate in increments of .125 percent to get as close as possible to the target monthly mortgage payment ratio. The interest rate floor in all cases is 2.0 percent."

Step 3: Extend the term and reamortize.

Step 4: If necessary, the servicer must provide for principal forbearance to achieve the target monthly mortgage payment ratio.


2) Servicers will be required to completely underwrite each loan.

3) Apparently after the new underwriting, the FHA might take out some of the loans. This will be interesting to see the details ...

4) TARP funds will be used to make this work (not clear how much or for what purpose).

5) These changes will apparently take effect in September.

And from the WaPo: Obama administration to order lenders to cut mortgage payments for jobless

The Obama administration plans to overhaul how it's tackling the foreclosure crisis, in part by requiring lenders to temporarily slash or eliminate monthly mortgage payments for many borrowers who are unemployed, senior officials said Thursday.
...
The administration's newest push also seeks to more aggressively help borrowers who owe more on their mortgages than their properties are worth, by encouraging lenders to cut the loan balances of millions of these distressed homeowners and possibly refinance into loans backed by the Federal Housing Administration.
...
For one, the government will for the first time provide financial incentives to lenders that cut the balance of a borrower's mortgage. ...

Second, government will double the amount it pays to lenders that help modify second mortgages ...

Third, the administration is increasingly turning to the Federal Housing Administration to help underwater borrowers who are still keeping up their payments. ...