Treasury Adds New Program Elements to Avert Foreclosures

The Treasury announced new initiatives under the administration's Making Home Affordable program late last week to provide additional options for homeowners facing foreclosure.
The first of the ""two new program components"":http://www.treas.gov/press/releases/docs/05142009FactSheet-MakingHomesAffordable.pdf is intended to help borrowers obtain modifications in those markets experiencing severe home price declines. If a modification is not possible, the second component has been put into place to encourage the quick private sale or voluntary transfer of property as an alternative to foreclosure.
Treasury Secretary Timothy Geithner called these supplemental pieces of the mortgage relief plan ""critical"" to stemming the foreclosure crisis and stabilizing the housing market, both of which he said were essential to the nation's economic recovery.
_*Home Price Decline Protection Incentives*_
The first new element added to the administration's attack on the nation's foreclosure crisis will provide lenders with additional incentives for loan modifications made where home prices have plunged the farthest and lenders fear these declines may persist. The goal of the initiative is to reduce the risk of loss to lenders from modifications compared to alternatives that could result in the loss of homeownership, and to encourage servicers to undertake more modifications in these distressed markets by assuring that incremental investor losses will be partially offset.
The model for the home price decline incentives was developed by the FDIC and Chairman Sheila Bair. The payments will be linked to the rate of recent home price declines in a particular local housing market, as well as the average cost of a home in that market. The administration will make payments totaling up to $10 billion to encourage lenders, servicers, and investors to modify rather than foreclose by addressing concerns that home price declines will persist in the future. In addition, the Treasury said that incentive payments on all home loans modified under the Making Home Affordable program will help cover the incremental collateral loss on those modifications that do not succeed.
_*Foreclosure Alternatives*_
The second of the new initiatives is meant to prevent costly foreclosures by providing incentives for servicers and borrowers to pursue short sales and deeds-in-lieu of foreclosure in cases where a borrower is eligible for a Making Home Affordable modification but unable to complete the modification process.
The Treasury explained that the new details will simplify and streamline the process of pursuing short sales and deeds-in-lieu, which will facilitate the ability of more servicers and homeowners to utilize the program to provide a better-than-foreclosure outcome for borrowers, investors, and communities alike. The program provides a standard process flow, minimum performance timeframes, and standard documentation. It also offers financial incentives to servicers to pursue these alternatives to foreclosure and incentives for borrowers to cover relocation expenses.
For those borrowers meeting the minimum eligibility criteria for a Home Affordable Modification but who do not ultimately qualify for a modification or are unable to sustain payments during the mod trial period, servicers must evaluate each case to determine if a short sale is appropriate prior to proceeding to foreclosure. The Treasury said that considerations in the determination include property condition and value, average marketing time in the community where the property is located, the condition of the title including the presence of junior liens, and a determination that the net sales proceeds are expected to exceed the investor's recovery through foreclosure.
Servicers may receive incentive compensation of up to $1,000 for successful completion of a short sale or deed-in-lieu. In addition, borrowers may receive incentive compensation of up to $1,500 to assist with relocation expenses. The Treasury will also share the cost of paying junior lien holders to release their claims, matching $1 for every $2 paid by the investors, up to a total contribution of $1,000 from the Treasury.
_*Making Home Affordable Progress*_
Treasury officials said they expect the new home price decline and foreclosure alternative initiatives, together with the other elements of the Making Home Affordable program, to help stabilize property values for homeowners in neighborhoods hardest hit by the housing crisis. Based on estimates of the relationship between foreclosures and home prices, officials said, the Home Affordable Modification program could help to bolster home values for the average homeowner by as much as $6,000.
To date, fourteen servicers, including the five largest, have signed contracts and begun modifications under the federal program. The Treasury reported that these ""14 participating servicers"":http://www.makinghomeaffordable.gov/contact_servicer.html have extended offers on over 55,000 trial modifications and mailed out over 300,000 letters with information about trial modifications to borrowers.
Between loans covered by these servicers and loans owned or securitized by Fannie Mae or Freddie Mac, the administration says more than 75 percent of all loans in the country are now covered under its Making Home Affordable program.
Since the program's launch, the Treasury said, more than one million Americans have successfully refinanced, thanks to historically low interest rates, and thousands of homeowners who were previously underwater on their mortgages have refinanced under the government's Home Affordable Refinance Program. Fannie Mae has had over 233,000 eligible applications through its refinancing program, with more than 51,000 of these having loan-to-value ratios between 80 and 105 percent. Already, more than 3,650 Home Affordable Refinance loans have closed and been delivered to Fannie Mae and Freddie Mac.
In addition, the Treasury said, close to 3 million borrowers have accessed Fannie Mae and Freddie Mac loan look-up tools online to see if they are eligible for refinancing. The Department also noted that its ""makinghomeaffordable.gov"":http://www.makinghomeaffordable.gov Web site has received more than 17.7 million page views since its launch less than two months ago.