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CUNA CUs should note changes to home mod program
WASHINGTON (4/30/09)--Credit unions should note the changes to President Barack Obama’s Home Modification Program, specifically those involving second lien mortgages, according to Jeff Bloch, Credit Union National Association (CUNA) senior assistant general counsel. CUNA believes that credit unions would be most affected by changes regarding second liens and the inclusion of the Home for Homeowners Program (H4H). Incentives will be awarded to lenders who can modify monthly payments on second mortgages. On Tuesday, the Treasury Department released details on how second lien mortgages would be treated under the program. For second lien mortgages that amortize:
* The rate will be reduced to 1%. The cost will be shared with the government. After five years, the rate will increase in steps to the then-current rate of the first mortgage, which cannot exceed the prevailing mortgage rate at the time of the modification; * The term of the second loan will match the first lien mortgage and be amortized over the same period; * There will be principal forbearance in the same proportion as there may be for the first lien, but there is no requirement for principal forbearance for the first lien, unless the loan is refinanced under the Federal Housing Administration’s (FHA) H4H Program; and * Investors will receive incentive payments equal to half the difference between the interest rate on the first lien as modified and 1%, subject to a floor.
For interest-only second liens, the following will be required:
* The rate will be reduced to 2%, with the cost shared by the government. After five years, the rate will increase in steps to the then-current rate of the first mortgage, which cannot exceed the prevailing mortgage rate at the time of the modification; * The term of the second loan will match the first lien mortgage and be amortized over the same period. The second loan will be amortized over the originally scheduled amortization period if that is longer than the term of the first mortgage loan; * There will be principal forbearance in the same proportion as there may be for the first lien, but there is no requirement for principal forbearance for the first lien, unless the loan is refinanced under the H4H Program; and * Investors will receive incentive payments equal to half the difference between the lower of the contract rate on the second lien and the interest rate on the first lien as modified, and 2%, subject to a floor.
Servicers will receive $500 and then $250 per year for three years if the loan remains current. Borrowers will receive $250 per year for up to five years, which will be applied to the principal of the first mortgage. Lenders and investors also can extinguish second liens in exchange for a larger payment. The lender/investor will receive 3 cents on the dollar if the loan is more than 180 days past due. If the loan is less than 180 days past due, the lender or investor will receive between 4-12 cents on the dollar, based on the debt-to-income ratio and the loan-to-value of the second lien. Treasury announced that H4H also will be integrated into the Home Modification Program. When the borrower enters into a modification, the servicer will be required to evaluate the borrower for a H4H refinance and must offer that refinance if the borrower qualifies and agrees to the refinance. The H4H requirements differ in a number of ways from the Home Modification Program and specific factors will determine which will be the most beneficial to the borrower. Servicers can receive a $2,500 up-front incentive payment for successful H4H refinancing. Lenders who originate new H4H refinanced loans can receive up to $1,000 per year for up to 3 years, provided the refinanced loan remains current. The Housing and Economic Recovery Act of 2008 directed the FHA to refinance up to $300 billion in troubled mortgages through the H4H Program. Effective for loans originated on or before Jan. 1, 2008, eligible homeowners will be able to refinance their primary residence home loans into fixed-rate, FHA-backed loans. To qualify, the lender or mortgage investor must reduce the loan principal and would receive a guarantee for the reduced loan amount. For more information, use the links.
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