Making Home Affordable Update: Second Lien Program, H4H and Participating Servicers

The Obama Administration’s Homeowner Affordability and Stability Plan (“HASP”) has added a second lien modification program (the “Second Lien Program”) to the Home Affordable Modification Program (“HAMP”). HASP is a part of the Administration’s comprehensive Financial Stability Plan, designed to stabilize the U.S. housing market, which also includes the Public-Private Investment Program (“PPIP”). Residential mortgage loan servicers who want to participate in the PPIP must also participate in the new Second Lien Program, in addition to HAMP and the Hope for Homeowners (“H4H”) refinancing program.

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The "Missing Link" Redux: Making Home Affordable

The Obama Administration’s Financial Stability Plan, announced on February 10, 2009, promised to address the foreclosure crisis with a comprehensive plan to stem foreclosures and restructure troubled mortgage loans. That plan, announced on February 18 as the Homeowner Affordability and Stability Plan or “HASP,” included access to low-cost refinancing for qualifying borrowers with conforming loans owned or guaranteed by Fannie Mae and Freddie Mac and a $75 billion homeowner stability initiative to prevent foreclosures. The details of the homeowner stability initiative, which would include a plan to encourage servicers to modify loans of homeowners who are delinquent on their loans or who are in danger of becoming delinquent, were to be released in early March.

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The "Missing Link" in Financial Stability Plan: President Obama Announces Homeowner Affordability and Stability Plan

Yesterday President Barack Obama announced his long-awaited foreclosure prevention and loan modification plan, referred to by many as the “missing link” in the Financial Stability Plan unveiled by Treasury Secretary Geithner last week. To address the problems of homeowners unable to refinance their loans or struggling to meet their mortgage obligations, the Homeowner Affordability and Stability Plan (“HASP”) seeks to help by providing the following: (1) access for borrowers to low-cost refinancing on conforming loans owned or guaranteed by Fannie Mae and Freddie Mac, (2) a $75 billion homeowner stability initiative to prevent foreclosures and (3) additional commitments allowing the Treasury to purchase up to an additional $200 billion of preferred stock of Fannie Mae and Freddie Mac and allowing Fannie Mae and Freddie Mac to increase the size of their retained mortgage portfolios by $50 billion. The $75 billion homeowner stability initiative includes financial incentives to borrowers and servicers in connection with loan modifications, a partial guarantee of losses resulting from declines in the home price index following loan modifications, the development of “national standards” for loan modifications (to be announced by March 4, 2009) and support for the modification of bankruptcy laws to allow bankruptcy judges to modify residential mortgage loans. The White House’s description of HASP was short on details and raises a number of interesting questions about how HASP could affect mortgage loans held by private label securitization trusts.

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Homeowner Affordability and Stability Plan Unveiled

The Obama administration unveiled the mortgage foreclosure component of its revised economic recovery package today by outlining the Homeowner Affordability and Stability Plan.  The plan involves a three-pronged approach to buoying the housing market.  First, it targets the four to five million homeowners whose loans are held by, or guaranteed by, Fannie Mae or Freddie Mac and wish to refinance but cannot because they lack enough equity in their homes despite being current on their loans.  Second, it provides an incentive to mortgage servicers for loan modifications for loans in imminent danger of foreclosure. Third, it increases available credit to the housing markets by making available an additional $100 billion for the Treasury Department to investment in preferred stock of each of Fannie Mae and Freddie Mac.

Click here for the Homeowner Affordability and Stability Plan executive summary, click here for the fact sheet, and click here for three case studies.