Obama Administration Announces New Details on Making Home Affordable Program Parallel Second Lien Program to Help Homeowners Achieve Greater Affordability Integration of Hope for Homeowners to Help Underwater Borrowers Regain Equity in their Homes https://www.treasury.gov/press-center/press-releases/Pages/tg108.aspx We can do this. Find COVID-19 vaccines near you. Visit Vaccines.gov. U.S. DEPARTMENT OF THE TREASURY Press Releases Weekly Public

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Obama Administration Announces New Details on Making Home Affordable Program Parallel Second Lien Program to Help Homeowners Achieve Greater Affordability Integration of Hope for Homeowners to Help Underwater Borrowers Regain Equity in their Homes Obama Administration Announces New Details on Making Home Affordable Program Parallel Second Lien Program to Help Homeowners Achieve Greater Affordability Integration of Hope for Homeowners to Help Underwater Borrowers Regain Equity in their Homes 4/28/2009 TG-108 WASHINGTON – The Obama Administration today announced details of new efforts to help bring relief to responsible homeowners under the Making Home Affordable © Program, including an effort to achieve greater affordability for homeowners by lowering payments on their second mortgages as well as a set of measures to help underwater borrowers stay in their homes.

"With these latest program details, we're offering even more opportunities for borrowers to make their homes more affordable under the Administration's housing plan," said Treasury Secretary Tim Geithner. "Ensuring that responsible homeowners can afford to stay in their homes is critical to stabilizing the housing market, which is in turn critical to stabilizing our financial system overall.

Every step we take forward is done with that imperative in mind." "Today's announcements will make it easier for borrowers to modify or refinance their loans under FHA's Hope for Homeowners program," said HUD Secretary Shaun Donovan. "We encourage Congress to enact the necessary legislative changes to make the Hope for Homeowners program an integral part of the Making Home Affordable Program." The Second Lien Program announced today will work in tandem with first lien modifications offered under the Home Affordable Modification Program SM to deliver a comprehensive affordability solution for struggling borrowers.

Second mortgages can create significant challenges in helping borrowers avoid foreclosure, even when a first lien is modified. Up to 50 percent of at-risk mortgages have second liens, and many properties in foreclosure have more than one lien. Under the Second Lien Program, when a Home Affordable Modification is initiated on a first lien, servicers participating in the Second Lien Program will automatically reduce payments on the associated second lien according to a pre-set protocol.

Alternatively, servicers will have the option to extinguish the second lien in return for a lump sum payment under a pre-set formula determined by Treasury, allowing servicers to target principal extinguishment to the borrowers where extinguishment is most appropriate. Separately, the Administration has also announced steps to incorporate the Federal Housing Administration's (FHA) Hope for Homeowners into Making Home Affordable. Hope for Homeowners requires the holder of the mortgage to accept a payoff below the current market value of the home, allowing the borrower to refinance into a new FHA-guaranteed loan.

Refinancing into a new loan below the home's market value takes a borrower from a position of being underwater to having equity in their home. By ABOU T TREASURY POLICY ISSUES DATA SERVICES NEWS SEARCH Skip Navigation Accessibility Languages Contact An official website of the United States Government

Obama Administration Announces New Details on Making Home Affordable Program Parallel Second Lien Program to Help Homeowners Achieve Greater Affordability Integration of Hope for Homeowners to Help Underwater Borrowers Regain Equity in their Homes https://www.treasury.gov/press-center/press-releases/Pages/tg108.aspx BUREAUS INSPECTOR GENERAL SITES U.S.

GOVERNMENT SHARED ADDITIONAL RESOURCES OTHER GOVERNMENT SITES Alcohol and Tobacco Tax and Trade Bureau of Engraving and Printing Office of Inspector General (OIG) Treasury Inspector General for Tax Administration (TIGTA) Enterprise Business Solutions Administrative Resource Center (ARC)- Bureau of the Fiscal Service Privacy Act Small Business Contacts Budget and Performance USA.gov USAJOBS.gov OPM.gov Bookmark and Share increasing a homeowner's equity in the home, Hope for Homeowners can produce a better outcome for borrowers who qualify.

Under the changes announced today and, when evaluating borrowers for a Home Affordable Modification, servicers will be required to determine eligibility for a Hope for Homeowners refinancing. Where Hope for Homeowners proves to be viable, the servicer must offer this option to the borrower. To ensure proper alignment of incentives, servicers and lenders will receive pay-for-success payments for Hope for Homeowners refinancings similar to those offered for Home Affordable Modifications.

These additional supports are designed to work in tandem and take effect with the improved and expanded program under consideration by Congress. The Administration supports legislation to strengthen Hope for Homeowners so that it can function effectively as an integral part of the Making Home Affordable Program. Making Home Affordable, a comprehensive plan to stabilize the U.S. housing market, was first announced by the Administration on February 18.

The three part program includes aggressive measures to support low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac; a Home Affordable Refinance Program, which will provide new access to refinancing for up to 4 to 5 million homeowners; and a Home Affordable Modification Program, which will reduce monthly payments on existing first lien mortgages for up to 3 to 4 million at-risk homeowners. Two weeks later, the Administration published detailed guidelines for the Home Affordable Modification Program and authorized servicers to begin modifications under the plan immediately.

Twelve servicers, including the five largest, have now signed contracts and begun modifications under the program. Between loans covered by these servicers and loans owned or securitized by Fannie Mae or Freddie Mac, more than75 percent of all loans in the country are now covered by the Making Home Affordable Program. Continuing to bolster its outreach around the program, the Administration also announced today a new effort to engage directly with homeowners via MakingHomeAffordable.gov.

Starting today, homeowners will have the ability to submit individual questions through the website to the Administration's housing team. Members of the Treasury and HUD staffs will periodically select commonly asked questions and post responses on MakingHomeAffordable.gov. To submit a question, homeowners can visit www.MakingHomeAffordable.gov/feedback.html. Selected questions from homeowners across the country and responses from the Administration will be available at www.MakingHomeAffordable.gov/asked-and-answered.html.

For additional details on the program announced today, please see the Program Update Fact Sheet. ### REPORTS Second Lien Program Fact Sheet Second Lien Program Case Examples

Obama Administration Announces New Details on Making Home Affordable Program Parallel Second Lien Program to Help Homeowners Achieve Greater Affordability Integration of Hope for Homeowners to Help Underwater Borrowers Regain Equity in their Homes https://www.treasury.gov/press-center/press-releases/Pages/tg108.aspx العربية | 中文 | Español | 한국어 | Tagalog | TiếngViệt • • • • • • • Required Plug-ins Adobe® Reader®, Adobe® Flash Player, MS Excel Viewer Bureau of the Fiscal Service Community Development Financial Institutions Fund Financial Crimes Enforcement Network (FinCEN) Internal Revenue Service Office of the Comptroller of the Currency U.S.

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April 28, 2009 Making Home Affordable Program Update On February 18, the Obama Administration announced the Making Home Affordable (MHA) Program, a comprehensive plan to stabilize the U.S. housing market. As promised, two weeks later on March 4, the Administration published detailed program guidelines and authorized servicers to begin modifications and refinancings under the plan immediately. Servicers covering more than 75 percent of loans in the country have now begun modifications and refinancings under the Administration’s MHA Program.

As previewed in the guidelines released March 4, today we are announcing additional details on the Second Lien Program and the integration of Hope for Homeowners into the MHA Program. 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 mortgage payments. Second liens contribute to the number of American homeowners unable to afford their housing payments.

Even where a first mortgage payment may be affordable, the addition of a second mortgage payment can increase monthly payments beyond affordable levels. In addition, second mortgages often complicate or prevent modification or refinancing of a first mortgage. We estimate up to 50 percent of at-risk mortgages currently have second liens.

By offering homeowners a way to lower payments on their second mortgages through our Second Lien Program, we may potentially reduce payments further for up to 1 to 1.5 million homeowners, accounting for up to 50 percent of participants in the Home Affordable Modification Program, as well as maximize the effectiveness of our first lien modification program. The program ensures that first and second lien holders are treated fairly and consistent with priority of liens.

Separately, the integration of an improved Hope for Homeowners program will help underwater borrowers, who often face heightened risks of foreclosure, by requiring principal writedowns to help homeowners increase the equity they own in their homes. These new details on the Second Lien Program and the integration of Hope for Homeowners mark ongoing progress of the Making Home Affordable Program in improving mortgage affordability for responsible homeowners and keeping more Americans in their homes. 1 Making Home Affordable Second Lien Program and Support for Hope for Homeowners 1.

Second Lien Program To Create a Comprehensive Affordability Solution for Homeowners • A Second Lien Program to Reach up to 1 to 1.5 Million Homeowners o Shared Efforts with Lenders to Reduce Second Mortgage Payments o Pay-for-Success Incentives for Servicers, Investors and Borrowers o Payment

Schedule for Extinguishing Second Mortgages • Automatic Modification of a Second Lien When a First Lien is Modified 2. Support for Hope for Homeowners • Inclusion of Hope For Homeowners in the Making Home Affordable Program o Requirement that Servicers Seek Hope for Homeowners Refinancing in Tandem with a MHA Trial Modification o Pay-For-Success Incentives Similar to Other MHA Modifications • More Principal Writedowns to Help Underwater Borrowers • Support for Legislation to Strengthen Hope for Homeowners • Treasury Purchase of Special Ginnie Mae Pools to Provide Liquidity for Hope for Homeowners Loans

April 28, 2009 1. Second Lien Program To Create a Comprehensive Affordability Solution for Homeowners: We estimate up to 50 percent of at-risk mortgages have second liens. Even if a first lien is modified to create an affordable payment, second liens can contribute to much higher foreclosure rates if not addressed. The Second Lien Program coordinates with the first mortgage modification program to lower payments on second liens and offer a comprehensive affordability solution for homeowners, helping keep more than a million Americans in their homes.

In some cases where appropriately tailored to the borrower, servicers may also choose to accept a lump-sum payment from Treasury to extinguish some or all of a second lien. • A Second Lien Program to reach up to 1 to 1.5 million homeowners, and potentially reduce payments further for up to 50 percent of participants in the Home Affordable Modification Program: The Second Lien Program will be a complementary program to the first lien modification program.

It is intended to reach more than a million 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 5.1 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 percent of their monthly income – particularly if they received subprime and exotic loans with exploding terms and hidden fees.

The Second Lien Program will help create a sustainably affordable mortgage payment for millions of homeowners who qualify for a first mortgage modification, yet still face challenges in affording their monthly payments because of a second mortgage. • Shared Efforts with Lenders to Reduce Second Mortgage Payments: Making Home Affordable will share the cost with lenders of reducing payments for homeowners on second mortgages. o For amortizing loans (loans with monthly payments of interest and principal), we will share the cost of reducing the interest rate on the second mortgage to 1 percent.

Participating servicers will be required to follow these steps to modify amortizing second liens: a Reduce the interest rate to 1 percent; a Extend the term of the modified second mortgage to match the term of the modified first mortgage, by amortizing the unpaid principal balance of the second lien over a term that matches the term of the modified first mortgage; a Forbear principal in the same proportion as any principal forbearance on the first lien, with the option of extinguishing principal under the Extinguishment Schedule; a After five years, the interest rate on the second lien will step up to the then current interest rate on the modified first mortgage, subject to the Interest Rate Cap on the first lien, set equal to the Freddie Mac Survey Rate; a The second mortgage will re-amortize over the remaining term at the higher interest rate(s); and a Investors will receive an incentive payment from Treasury equal to half of the difference between (

i) the interest rate on the first lien as modified and (ii) 1 percent, subject to a floor. o For interest-only loans, we will share the cost of reducing the interest rate on the second mortgage to 2 percent. Participating servicers will be required to follow these steps to modify interest-only second liens: a Reduce the interest rate to 2 percent; 2

April 28, 2009 a Forbear principal in the same proportion as any principal forbearance on the first lien, with the option of extinguishing principal under the Extinguishment Schedule; a After five years, the interest rate on the second lien will step up to the then current interest rate on the modified first mortgage, subject to the Interest Rate Cap on the first lien, set equal to the Freddie Mac Survey Rate; a The second lien will amortize over the longer of the remaining term of the modified first lien or the originally scheduled amortization term, with amortization to begin at the time specified in the original contract; a Investors will receive an incentive payment from Treasury equal to half of the difference between (

i) the lower of the contract rate on the second lien and the interest rate on the first lien as modified and (ii) 2 percent, subject to a floor. • Pay-for-Success Incentives for Servicers and Borrowers: o The Second Lien Program will have a pay-for-success structure similar to the first lien modification program, aligning incentives to reduce homeowner payments in a way most cost effective for taxpayers. a Servicers can be paid $500 up-front for a successful modification and then success payments of $250 per year for three years, as long as the modified first loan remains current. a Borrowers can receive success payments of up to $250 per year for as many as five years.

These payments will be applied to pay down principal on the first mortgage, helping to build the borrower's equity in the home. • Payment

Schedule to Compensate Lenders for Extinguishing a Second Mortgage: o As an alternative to modifying the second lien, lenders/investors will have the option to extinguish second liens in exchange for larger payments under a pre-set formula. This will allow second lien holders to target principal extinguishment to the borrowers where extinguishment is most appropriate.

For loans that are more than 180 days past due at the time of the modification, the lender/investor will be paid three cents per dollar of UPB extinguished. • Table: Extinguishment Price Schedule: Per Dollar of UPB in LTV range (Loans less than 180 days past due) o Second-Lien LTV Range Back-End DTI < 110 110 to 140 > 140 > 55 % 0.09 0.06 0.04 < 55 % 0.12 0.09 0.06 • Clear and Consistent Guidelines for Second Lien Modifications: As with the first lien modification program, the Second Lien Program provides clear and consistent guidelines for 3

April 28, 2009 modifying both amortizing and interest-only second liens. A lack of common standards has limited loan modifications of both first and second liens in the past, even when modifications 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 of a lack of clear standards.

Clear and consistent guidelines for modifications are a key component of foreclosure prevention. • Automatic Modification of a Second Lien When a First Lien is Modified: The Second Lien Program will facilitate automatic modification of a second lien when a first lien is modified for participating servicers, to ensure a comprehensive affordability solution for borrowers. • Second Lien Modification May Not Delay First Lien Modification: The Second Lien Program will be a voluntary parallel program to the first lien modification program. Modification of a second lien will not delay modification of a first lien.

The modification offer for a second lien under the program will occur as soon as the second lien servicer is able to prepare the terms and contact the borrower. • Cost-Effective for Taxpayers: To protect taxpayers, the MHA Second Lien Program will focus on sound modifications. All the payments are designed around the principle of “pay for success.” Borrowers, servicers and lenders/investors all have aligned incentives under the program to complete successful modifications at an affordable and sustainable level. 2.

Support for Hope for Homeowners: An improved Hope for Homeowners program can offer an important avenue for struggling borrowers to obtain a sustainable mortgage. Hope for Homeowners can particularly benefit underwater borrowers by helping to increase the equity they own in their homes.

These additional supports are designed to work in tandem and take effect with the improved and expanded program under consideration by Congress. • Inclusion of Hope For Homeowners in the Making Home Affordable Program: Making Home Affordable will include Hope for Homeowners as an important element of a comprehensive program to help responsible homeowners improve affordability of their mortgages and avoid preventable foreclosure. • Requirement that Servicers Seek Hope for Homeowners Refinancing in Tandem with a MHA Trial Modification: When a borrower is in a trial Home Affordable Modification, a servicer will be required to evaluate a borrower for a Hope for Homeowners refinance and to offer the refinancing opportunity to the borrower if he or she qualifies.

If a servicer determines the borrower is eligible for a Hope for Homeowners refinance in the initial discussion with the borrower, the servicer is required to also offer the refinance at the same time as the trial modification offer. • Pay-For-Success Incentives Similar to Other MHA Modifications: Servicers and lenders who help make mortgages more affordable for struggling homeowners through Hope for Homeowners will receive pay-for-success incentive payments similar to the incentive payments offered for Home Affordable Modifications. o Servicers can receive a $2,500 up-front incentive payment for a successful Hope for Homeowners refinancing. o Lenders who originate the new Hope for Homeowners refinanced loans are eligible for success fees of up to $1,000 per year for up to three years, so long as the refinanced loan remains current. 4

April 28, 2009 5 o These incentive payments will only be available to servicers and originators who are participants in the Making Home Affordable Program. • More Principal Writedowns to Help Underwater Borrowers: Hope for Homeowners offers homeowners mortgage refinancings that include principal writedowns. This will allow underwater borrowers to increase the amount of equity they own in their homes.

Underwater borrowers are more likely to be at risk of foreclosure, so increasing equity for these homeowners through Hope for Homeowners will be an important tool for the Administration in preventing avoidable foreclosures and keeping Americans in their homes. • Support for Legislation to Strengthen Hope for Homeowners: In order to ensure that many more borrowers are able to participate in Hope for Homeowners, we are working to improve the program and actively pursuing 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 make further improvements to strengthen Hope for Homeowners so that it can function effectively as an integral part of the Making Home Affordable Program. • Treasury Purchase of Special Ginnie Mae Pools to Provide Liquidity for Hope for Homeowners Loans: Under HERA authority, Treasury or the GSEs would purchase special Hope for Homeowners Ginnie Mae IIs wrapped by the GSEs.

These purchases will increase secondary market liquidity for new Hope for Homeowners loans, supporting additional assistance to homeowners. ###