HUD Secretary Preston said today lenders are more receptive to writing down the principal of homes on the verge of foreclosure, expressing hope that more will utilize a new $300 billion government program designed to place at-risk borrowers into a fixed-rate loan they can afford. Preston noted lenders are loath to write down the principal of a loan, preferring less costly alternatives such as reducing interest rates or extending the maturity to keep owners in their homes. But Preston said he has sensed a change among lenders due to the severity of the foreclosure crisis and the availability of the new program, which will allow certain subprime borrowers to refinance under a new fixed-rate loan guaranteed by the Federal Housing Administration.
Lenders will take a hit under the program, which started Oct. 1, because the new mortgage can only be up to 90 percent of the home's appraised value. However, "for the first time we are beginning to see more and more lenders take that action because it is necessary to make these loans affordable," said Preston during an interview at HUD's national housing summit. Lenders successfully lobbied against legislation this year that would have authorized bankruptcy judges to reduce a mortgage to its current market value, claiming that would make the cost of home loans more expensive because investors could not be guaranteed a rate of return. Some academics disagree with the claims. The recently enacted $700 billion economic rescue bill also contains two significant provisions that would expand the program, which is slated to help 400,000 borrowers. One would make it easier to buy out lenders who have a second mortgage on the property, the other would allow HUD to increase the 90-percent threshold under certain circumstances. Preston said the latter provision "may encourage more lenders to come into the program." But the recent changes will not have an immediate effect because they will likely have to undergo a comment period before they can be implemented, Preston cautioned.
HUD also is ramping up its efforts to distribute $3.9 billion in funding to 308 states and communities to buy and rehabilitate foreclosed properties, and in some cases offer down-payment and closing assistance. The funding was provided in the housing-stimulus measure enacted this summer. "The communities [and] the states out there right now are in ... a high-activity mode, which is to make sure they understand the program, think through how they would use the funds and to put in place an action plan," Preston said. Plans must be submitted by Dec. 1. HUD recently released its allotments per state, prompting some criticism that the allocations were not just based on foreclosure rates but on how many properties are actually abandoned. For example, Florida topped the list with $541.4 million, while California received $529.6 million. The difference resulted from the fact that Florida had a more severe crisis with abandoned properties across the state, whereas California's foreclosures were more concentrated in certain areas such as Riverside and San Bernardino counties. Florida also had the highest number of grant recipients in the program, with 49.
Lenders will take a hit under the program, which started Oct. 1, because the new mortgage can only be up to 90 percent of the home's appraised value. However, "for the first time we are beginning to see more and more lenders take that action because it is necessary to make these loans affordable," said Preston during an interview at HUD's national housing summit. Lenders successfully lobbied against legislation this year that would have authorized bankruptcy judges to reduce a mortgage to its current market value, claiming that would make the cost of home loans more expensive because investors could not be guaranteed a rate of return. Some academics disagree with the claims. The recently enacted $700 billion economic rescue bill also contains two significant provisions that would expand the program, which is slated to help 400,000 borrowers. One would make it easier to buy out lenders who have a second mortgage on the property, the other would allow HUD to increase the 90-percent threshold under certain circumstances. Preston said the latter provision "may encourage more lenders to come into the program." But the recent changes will not have an immediate effect because they will likely have to undergo a comment period before they can be implemented, Preston cautioned.
HUD also is ramping up its efforts to distribute $3.9 billion in funding to 308 states and communities to buy and rehabilitate foreclosed properties, and in some cases offer down-payment and closing assistance. The funding was provided in the housing-stimulus measure enacted this summer. "The communities [and] the states out there right now are in ... a high-activity mode, which is to make sure they understand the program, think through how they would use the funds and to put in place an action plan," Preston said. Plans must be submitted by Dec. 1. HUD recently released its allotments per state, prompting some criticism that the allocations were not just based on foreclosure rates but on how many properties are actually abandoned. For example, Florida topped the list with $541.4 million, while California received $529.6 million. The difference resulted from the fact that Florida had a more severe crisis with abandoned properties across the state, whereas California's foreclosures were more concentrated in certain areas such as Riverside and San Bernardino counties. Florida also had the highest number of grant recipients in the program, with 49.
