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Making Home Affordable
Updated Detailed Program Description
U.S. DEPARTMENT OF THE TREASURY
Washington
March 4, 2009
The deep contraction in the economy and in the housing market has created devastating
consequences for homeowners and communities throughout the country. Millions of responsible
families who make their monthly payments and fulfill their obligations have seen their property
values fall, and are now unable to refinance to lower mortgage rates. Meanwhile, millions of
workers have lost their jobs or had their hours cut, and are now struggling to stay current on their
mortgage payments. As a result, as many as 6 million families are expected to face foreclosure in
the next several years, with millions more struggling to stay current on their payments.
The present crisis is real, but temporary. As home prices fall, demand for housing will increase,
and conditions will ultimately find a new balance. Yet in the absence of decisive action, we risk
an intensifying spiral in which lenders foreclose, pushing area home prices still lower, reducing
the value of household savings, and making it harder for all families to refinance. In some studies,
foreclosure on a home has been found to reduce the prices of nearby homes by as much as 9%.
The Obama Administration’s Making Home Affordable program will offer assistance to as many
as 7 to 9 million homeowners making a good-faith effort to make their mortgage payments, while
attempting to prevent the destructive impact of the housing crisis on families and communities. It
will not provide money to speculators, and it will target support to the working homeowners who
have made every possible effort to stay current on their mortgage payments. Just as the American
Recovery and Reinvestment Act works to save or create several million new jobs and the
Financial Stability Plan works to get credit flowing, the Making Home Affordable program will
support a recovery in the housing market and ensure that these workers can continue paying off
their mortgages.
By supporting low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac,
providing up to 4 to 5 million homeowners with new access to refinancing and creating a
comprehensive stability initiative to offer reduced monthly payments for up to 3 to 4 million at-
risk homeowners, this plan – which draws off the best ideas developed within the Administration,
as well as from Congressional housing leaders and Federal Deposit Insurance Corporation Chair
Sheila Bair – brings together the government, lenders, loan servicers, investors and borrowers to
share responsibility towards ensuring working Americans can afford to stay in their homes.
Making Home Affordable
1. Home Affordable Refinance Program for Responsible Homeowners Suffering From Falling
Home Prices
2. A Comprehensive $75 Billion Home Affordable Modification Program
A Loan Modification Plan To Reach up to 3 to 4 Million Homeowners
oShared Effort with Lenders to Reduce Mortgage Payments
oIncentives to Servicers and Borrowers
Clear and Consistent Guidelines for Loan Modifications
Required Participation By Financial Stability Plan Participants
Modifications of Home Mortgages During Bankruptcy
Strengthen Hope for Homeowners and Other FHA Loan Programs
Support Local Communities and Help Displaced Renters
3. Support Low Mortgage Rates by Strengthening Confidence in Fannie Mae and Freddie Mac
U.S. DEPARTMENT OF THE TREASURY
Washington
March 4, 2009
1. A Home Affordable Refinance Program to Provide Access to Low-Cost Refinancing for
Responsible Homeowners Suffering From Falling Home Prices:
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Provide the Opportunity for Up to 4 to 5 Million Responsible Homeowners to
Refinance: Mortgage rates are currently at historically low levels, providing
homeowners with the opportunity to reduce their monthly payments by refinancing.
But under current rules, most families who owe more than 80% of the value of their
homes have a difficult time securing refinancing. (For example, if a borrower’s home
was worth $200,000, he or she would have limited refinancing options if he or she
owed more than $160,000.) Yet millions of responsible homeowners who put money
down and made their mortgage payments on time have – through no fault of their
own – seen the value of their homes drop low enough to make them unable to take
advantage of these lower rates. As a result, the Obama Administration’s program will
provide the opportunity for up to 4 to 5 million responsible homeowners who took
out loans owned or guaranteed by Freddie Mac and Fannie Mae (the GSEs) to
refinance through the two institutions over time.
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Reducing Monthly Payments: For many families, a low-cost refinancing could
reduce mortgage payments by thousands of dollars per year. For example, consider a
family that took a 30-year fixed rate mortgage of $207,000 with an interest rate of
6.50% on a house worth $260,000 at the time. Today, that family has $200,000
remaining on their mortgage, but the value of that home has fallen 15% to $221,000
– making them ineligible for today’s low interest rates that generally require the
borrower to have 20% home equity. Under this refinancing plan, that family could
refinance to a rate near 5.16% – reducing their annual payments by over $2,300.
2. A $75 Billion Home Affordable Modification Program to Prevent Foreclosures and
Help Responsible Families Stay in Their Homes:
The Treasury Department, working with the GSEs, FHA, the FDIC and other federal agencies, will undertake a comprehensive multipart strategy to prevent millions of foreclosures and help families stay in their homes. This strategy includes the following five features:
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A Home Affordable Modification Program to Reach Up to 3 to 4 Million At-Risk
Homeowners
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Clear and Consistent Guidelines for Loan Modifications
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Requiring That Financial Stability Plan Recipients Use Treasury Guidelines for
Loan Modifications
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Allowing Judicial Modifications of Home Mortgages During Bankruptcy When A
Borrower Has No Other Options
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Requiring Strong Oversight, Reporting and Quarterly Meetings with Treasury, the
FDIC, the Federal Reserve and HUD to Monitor Performance
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Strengthening FHA Programs and Providing Support for Local Communities
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U.S. DEPARTMENT OF THE TREASURY
Washington
March 4, 2009
A. A Home Affordable Modification to Reach Up to 3 to 4 Million At-Risk Homeowners:
This program is intended to reach millions of responsible homeowners who are struggling
to afford their mortgage payments because of the current recession, yet cannot sell their
homes because prices have fallen so significantly. In the current economy, in which 3.6
million jobs have been lost over the past 14 months, millions of hard-working families
have seen their mortgage payments rise to 40 or even 50% of their monthly income –
particularly if they received subprime and exotic loans with exploding terms and hidden
fees. The Home Affordable Modification program operates through a shared partnership
to help those who commit to make reasonable monthly mortgage payments to stay in
their homes, providing families with security and neighborhoods with stability. This plan
will also help to stabilize home prices for homeowners in neighborhoods hardest hit by
foreclosures. Based on estimates concerning the relationship between foreclosures and
home prices, with the average house in the U.S. valued around $200,000, the average
homeowner could see his or her home value stabilized against declines in price by as
much as $6,000 relative to what it would otherwise be absent the Home Affordable
Modification program.
Who the Program Reaches:
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Focusing on Homeowners At Risk: Homeowners at risk, such as those suffering
serious hardships, decreases in income, increases in expenses, payment “shock,”
high combined mortgage debt compared to income, who are “underwater” (with a
combined mortgage balance higher than the current market value of the house), or
who show other indications of being at risk of default may be eligible for a loan
modification. Eligibility for the program will sunset at the end of three years.
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Reaching Homeowners Before They Have Missed Payments: Delinquency will not
be a requirement for eligibility. Rather, because loan modifications are more likely to
succeed if they are made before a borrower misses a payment, modifications for
households at risk of imminent default despite being current on their mortgage
payments are eligible to participate, in addition to those who have fallen behind.
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Common Sense Restrictions: Only owner-occupied homes qualify; no home
mortgages larger than the FHFA conforming limit of $729,750 will be eligible. This
program will focus solely on supporting responsible homeowners willing to make
payments to stay in their home – it will not aid speculators or house flippers.
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Special Provisions for Families with High Total Debt Levels: Borrowers with high
total debt qualify, but only if they agree to enter HUD-certified consumer debt
counseling. Specifically, homeowners with total “back end” debt (which includes not
only housing debt, but other debt including car loans and credit card debt) equal to
55% or more of their income will be required to agree to enter a HUD-certified
counseling program as a condition for a modification.
How the Program Works
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The Home Affordable Modification program has a simple goal: reduce the amount
homeowners owe per month to sustainable levels to stabilize communities. This
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U.S. DEPARTMENT OF THE TREASURY
Washington
March 4, 2009
program will bring together lenders, investors, servicers, borrowers, and the
government, so that all stakeholders share in the cost of ensuring that responsible
homeowners can afford their monthly mortgage payments – helping to reach up to 3
to 4 million at-risk borrowers in all segments of the mortgage market, reducing
foreclosures, and helping to avoid further downward pressures on overall home
prices. The program has several key components:
i. Shared Effort to Reduce Monthly Payments: Treasury will partner with
financial institutions and investors to reduce homeowners’ monthly mortgage
payments.
-The lender will have to first reduce monthly payments on mortgages
to a specified affordability level (specifically, the lender must bring
down monthly payments so that the borrower’s monthly mortgage
payment is no greater than 38% of his or her income).
-Next, the program will match further reductions in monthly
payments dollar-for-dollar, from 38% down to 31% debt-to-income
ratio for the borrower.
-To ensure long-term affordability, the modified payments will be
kept in place for five years and the loan rate will be capped for the
life of the loan. After five years, the interest rate can be gradually
stepped-up by 1% per year to the conforming loan survey rate in
place at the time of the modification.
-To reach the target affordability level of 31%, interest payments will
first be reduced down to as low as 2%. If at that rate the debt to
income level is still over 31%, lenders then extend the term or
amortization period up to 40 years, and finally forbear principal at no
interest, until the payment is reduced to the 31% target.
-Treasury will share the costs of reducing the payment from 38% DTI
to 31% DTI dollar for dollar.
-Note: Lenders can also bring down monthly payments to these
affordability targets through reducing the amount of mortgage
principal. The program will provide a partial share of the costs of
this principal reduction, up to the amount the lender would have
received for an interest rate reduction as long as the lender reaches
the target rate of affordability at 31% debt-to-income.
ii. “Pay for Success” Incentives to Servicers:
Servicers will receive an up-front fee of $1,000 for each eligible
modification meeting guidelines established under this initiative.
Servicers will also receive “pay for success” fees –as long as the
borrower is successful at staying in the program – of $1,000 each
year for three years, subject to a de minimis threshold.
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U.S. DEPARTMENT OF THE TREASURY
Washington
March 4, 2009
-Servicers will get similar incentives if they modify FHA, VA, or
Agriculture Department loans, or refinance loans according to the
Hope for Homeowners or similar FHA programs.
iii. Responsible Modification Incentives:
-Because loan modifications are more likely to succeed if they are
made before a borrower misses a payment, the plan will include an
incentive payment of $1,500 to mortgage holders and $500 for
servicers for modifications made while a borrower at risk of
imminent default is still current on their payments.
-The servicer portion of this incentive will also be available for
modifications of FHA, VA, or Agriculture Department loans, or
refinance loans under the Hope for Homeowners or similar FHA
programs.
iv. Incentives to Help Borrowers Stay Current: To provide an extra incentive
for borrowers to keep paying on time under the modified loan, the initiative
will provide a monthly pay for performance success payment that goes
straight towards reducing the principal balance on the mortgage loan.
-As long as the borrower stays current on his or her payments, he or
she can get up to $1,000 each year for five years, subject to a de
minimis threshold.
-As with the servicer incentives, these borrower incentives are also
available for modifications of FHA, VA, or Agriculture Department
loans, or refinance loans under the Hope for Homeowners or similar
FHA programs.
v. Home Price Decline Payments: To encourage the modification of more
mortgages and enable more families to keep their homes, the Administration
--together with the FDIC --has developed an innovative payment that
provides compensation that can partially offset losses from failed
modification when home prices decline, but is structured as a simple cash
payment on every eligible loan. The Treasury Department will make
payments totaling up to $10 billion to discourage lenders, servicers and
investors from opting to foreclose on mortgages that could be viable now out
of fear that home prices will fall even further later on. This initiative provides
servicers with the security to undertake more mortgage modifications by
assuring that if home price declines continue to occur or worsen, investor
losses are partially offset. Holders of mortgages modified under the program
would be provided with an additional payment on each modified loan, linked
to declines in the home price index.
vi. Second Liens: While eligible loan modifications will not require any
participation by second lien holders, the program will include additional
incentives to extinguish second liens on loans modified under the program, in
order to reduce the overall indebtedness of the borrower and improve loan
performance. Servicers will be eligible to receive compensation when they
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U.S. DEPARTMENT OF THE TREASURY
Washington
March 4, 2009
contact second lien holders and extinguish valid junior liens (according to a
schedule to be specified by the Treasury Department, depending in part on
combined loan to value). Servicers will be reimbursed for the release
according to the specified schedule, and will also receive an extra $250 for
obtaining a release of a valid second lien.
How It Will Be Effective
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Protecting Taxpayers and Communities: To protect taxpayers, the Home Affordable
Modification programwill focus on sound modifications. No payments will be made
unless the modification lasts for at least three months, and all the payments are
designed around the principal of “pay for success.” Borrowers, servicers and
lenders/investors all have aligned incentives under the program to get successful
modifications at an affordable and sustainable level.
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Counseling and Outreach to Maximize Participation: Under the plan, the
Department of Housing and Urban Development will also make available funding for
non-profit counseling agencies to improve outreach and communications, especially
to disadvantaged communities and those hardest-hit by foreclosures and vacancies.
Borrowers with high debt-to-income levels must agree to use counseling services.
A.Creating Proper Oversight and Tracking Data to Ensure Program Success: Fannie
Mae and Freddie Mac will be responsible – subject to Treasury’s oversight and the
Federal Housing Finance Agency’s conservatorship – for monitoring compliance by
servicers with the program. Every servicer participating in the program will be
required to report standardized loan-level data on modifications, borrower and
property characteristics, and outcomes. The data will be pooled so the government
and private sector can measure success and make changes where needed. Treasury
will meet quarterly with the FDIC, the Federal Reserve, the Department of Housing
and Urban Development and the Federal Housing Finance Agency to ensure that the
program is on track to meeting its goals.
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Limiting the Impact of Foreclosure When Modification Doesn’t Work: Servicers
will receive incentives to take alternatives to foreclosures, like short sales or taking of
deeds in lieu of foreclosure. For those borrowers unable to maintain homeownership,
even under the affordable terms offered, the plan will provide incentives to encourage
families and servicers to avoid the costly foreclosure process and minimize the
damage that foreclosure imposes on financial institutions, borrowers and
communities alike. Servicers will be eligible for a payment of $500 and can make
reimbursable payments up to $1000 to extinguish other liens, and borrowers are
eligible for a payment of $1500 in relocation expenses in order to effectuate short
sales and deeds-in-lieu of foreclosure. Such methods reduce vacancy, neighborhood
decline, and overall costs for financial institutions, borrowers, and affected
communities alike.
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Treasury will also work with the GSEs to provide data on foreclosed properties to
streamline the process of selling or redeveloping them, thereby ensuring that they do
not remain vacant and unsold.
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U.S. DEPARTMENT OF THE TREASURY
Washington
March 4, 2009
B. Clear and Consistent Guidelines for Loan Modifications: A lack of common standards
has limited loan modifications, even when they are likely to both reduce the chance of
foreclosure and raise the value of the securities owned by investors. Mortgage servicers –
who should have an interest in instituting common-sense loan modifications – often
refrain from doing so because they fear lawsuits. Clear and consistent guidelines for
modifications are a key component of foreclosure prevention.
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Clear and Consistent Guidelines for Loan Modifications: Working with the FDIC,
other federal banking and credit union regulators, the FHA and the Federal Housing
Finance Agency, the Administration today announced guidelines for sustainable
mortgage modifications that may be used by all federal agencies and the private
sector – bringing order and consistency to foreclosure mitigation. The guidelines
include detailed protocols for loss mitigation and will serve as standard industry
practice.
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Applied Across Government and the Private Sector: Treasury today issued
Guidelines for loan modifications that should serve as standard industry practice
across the mortgage industry by working closely with the FDIC and other banking
agencies and building on the FDIC’s pioneering role in developing a systematic loan
modification process last year. The Guidelines – to be posted online – will be used
for the Administration’s new foreclosure prevention plan. Moreover, all financial
institutions receiving Financial Stability Plan financial assistance going forward will
be required to implement loan modification plans consistent with Treasury
Guidelines. Fannie Mae and Freddie Mac will use these guidelines for loans that
they own or guarantee, and the Administration will work with regulators and other
federal and state agencies to implement these guidelines across the entire mortgage
market. Ginnie Mae, the Federal Housing Administration, Treasury, the Federal
Reserve, the FDIC, The Department of Veterans’ Affairs and the Department of
Agriculture also have agreed to seek to apply these guidelines when permissible and
appropriate to all loans owned or guaranteed by these agencies. In addition, it is
expected that the Office of the Comptroller of the Currency, the Office of Thrift
Supervision, the Federal Reserve, the Federal Deposit Insurance Corporation and the
National Credit Union Administration where possible and appropriate will encourage
the institutions that they supervise to participate in the loan modification program and
use the Treasury Guidelines.
Mortgage Insurer Participation. The major mortgage insurance firms have agreed
to develop a mechanism by which they will make partial claims on modified loans
where appropriate in order help prevent avoidable foreclosures.
C. Requiring All Financial Stability Plan Recipients to Use Guidelines for Loan
Modifications: The Treasury Department will require all Financial Stability Plan
recipients going forward to participate in foreclosure mitigation plans consistent with
Treasury’s loan modification guidelines.
D. Allowing Judicial Modifications of Home Mortgages During Bankruptcy for
Borrowers Who Have Run Out of Options: The Obama administration will seek
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U.S. DEPARTMENT OF THE TREASURY
Washington
March 4, 2009
carefully crafted changes to bankruptcy provisions which will help to facilitate the goals
of the Making Home Affordable program
How Judicial Modification Works: Appropriately tailored bankruptcy legislation
provides a mechanism for homeowners who are out of other options to file for
bankruptcy and implement a responsible plan to pay the debts that they are able to
pay. After borrowers have tried unsuccessfully to obtain affordable loan
modifications from their lenders or servicers, in the appropriate circumstances, a
bankruptcy judge should be able to reduce the outstanding principal balance of a
primary residence home mortgage loan to current fair market value—just as is done
with vacation homes or investment properties--when a person has no other options.
Bolster FHA and VA Authority to Protect Issuers and Ensure Loan Modifications
Occur: Legislation will provide the FHA and VA with the authority they need to
provide partial claims in the event of bankruptcy or voluntary modification so that
issuers guaranteed by the FHA and VA are not disadvantaged.
E. Strengthening FHA Programs and Providing Support for Local Communities
Ease Restrictions in FHA Programs and Improve Hope for Homeowners
An improved Hope for Homeowners program can offer an important avenue for
struggling borrowers to obtain a sustainable mortgage. In order to ensure that many
more borrowers are able to participate in Hope for Homeowners, we will work to
improve the program and actively pursue legislation so that the FHA may reduce fees
paid by borrowers, increase flexibility for lenders to refinance troubled loans, permit
borrowers with higher debt loads to qualify, and address additional challenges that
could limit uptake under the program. We will also ensure servicers consider
borrowers for refinancing into the improved Hope for Homeowners program
whenever feasible, and make similar incentives available to servicers for Hope for
Homeowners refinance loans in order to encourage servicers to use this program.
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Strengthening Communities Hardest Hit by the Financial and Housing Crises: As
part of the recovery plan signed by the President, the Department of Housing and
Urban Development will award $2 billion in competitive Neighborhood Stabilization
Program grants for innovative programs that reduce foreclosure. Additionally, the
recovery plan includes an additional $1.5 billion to provide renter assistance,
reducing homelessness and avoiding entry into shelters
Support Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie
Mac: Ensuring Strength and Security of the Mortgage Market: Using funds already
authorized in 2008 by Congress for this purpose, the Treasury Department increased
its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and
security of the mortgage market and to help maintain mortgage affordability.
Provide Forward-Looking Confidence: The increased funding will enable
Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure
mortgage affordability for responsible homeowners, and provide forward-
looking confidence in the mortgage market.
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