House Panel Votes for Modification Safe Haven, Hope Overhaul…Now maybe they will lower the principal balance

Austin Kilgore | 02.05.09

Mortgage servicers that have been reluctant to perform certain loan modifications for fear of lawsuits for violating service agreements may have some relief coming.

The House Financial Services Committee voted Wednesday to create a legal safe haven for mortgage servicers that modify mortgages regardless of the original service agreements so long as they are in compliance with the Homeowner Emergency Relief Act. The proposal would also require servicers to report modification activity to the Treasury Department.

There may also be some hope for the struggling Hope for Homeowners program. The committee’s resolution would also overhaul the $300 billion mortgage guarantee program that’s barely put a dent in reducing foreclosures.

When Congress passed the original Hope for Homeowners legislation, the program was expected to help as many as 400,000 homeowners, but since it was launched in October, there have only been 451 applicants and only 25 loans have closed.

Charles McMillan, president of the National Association of Realtors, said, “Hope for Homeowners, was designed to help families refinance into safer, more affordable mortgages, in many cases helping those families avoid a devastating foreclosure. Despite being well-intentioned, the Hope for Homeowners program has had limited success. Lenders have found the program difficult to participate in because of many of the program’s constraints.”

The changes would lower participation standards, and cut costs for lenders and borrowers.

Massachusetts Rep. Barney Frank told the House Financial Services Committee, “There have been a series of trials and errors here,” in the efforts to fix the program.

A third provision would make permanent the temporary increase in FDIC bank depositor insurance from $100,000 to $250,000 per account.

The legislation is expected to be considered by the full House next week.
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