HUD Will Buy Seconds to Spur H4HProgram

Washington-In an attempt to spur usage of its Hope for Homeowners refinancing program, the Department of Housing and Urban Development said it will now buy out second-lien holders - likely for pennies on the dollar.

The secondary market for delinquent seconds likely will not see a lift because of HUD's new effort. Private sector investors were already offering next to nothing for second liens, especially if they were part of 80/20 combo loans.

HUD secretary Steve Preston recently admitted that the H4H program has failed to catch fire with residential servicers looking to refinance struggling homeowners into new FHA-insured mortgages. Speaking at the National Press Club, Mr. Preston unveiled several changes to the H4H program, including extending new loans with terms as long as 40 years.

Also, HUD will now allow lenders to write down the value of the house to 96.5% of its current value. Previously, the requirement was 90%. And in one other change, borrowers using H4H can have debt-to-income ratios as high as 50%.

Mandated into law this summer, the original H4H program required that holders of a second mortgage relinquish their lien in exchange for sharing in a homes' price appreciation once a new mortgage is written.

Mr. Preston noted that second-lien holders "have low expectations already" adding that HUD likely will pay "pennies on the dollar" for these seconds.

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