Some Like Obama Mod Plan

Washington-It appears the mortgage industry likes the White House's new, somewhat, detailed plan to refinance or modify up to nine million home mortgages, but will it work?

Last week the Mortgage Bankers Association and a handful of the nation's top-ranked servicing firms quickly praised the "Making Home Affordable" plan, in particular allowing for loans of up to $729,750 to be included.

But, perhaps, the initiative's biggest selling point is language in MHA stipulating that principal reductions - or non-judicial "cramdowns" - be used only as a last resort.

As laid out by the Treasury Department, investor/servicers must first try reducing the interest rate - subject to a floor of 2% - and if that doesn't work extending the loan term to 40 years.

Treasury notes that principal reductions will only be offered "if necessary."

The government hopes to modify 3 million to 4 million troubled mortgagors under MHA. Additionally, the refinance portion of the program could help as many as 5 million consumers whose loans presently are held by Fannie Mae or Freddie Mac.

Refinancing certain GSE borrowers has been problematic because declining home values have pushed up their loan-to-value ratios, which means private mortgage insurance is needed.

The government is promising that when it comes to refis "in some cases" an appraisal will not be required. The refi aspect of MHA expires in June 2010.

The loan mod portion of the initiative sunsets at year-end 2012. For both programs only mortgages originated on or before Jan. 1, 2009 are eligible.

Participating servicers must perform a "net present value" test on each mortgage that is under consideration for modification - if the loan is at risk of defaulting or is at least 60 days late.

Also, participating companies are required to service the loans themselves and cannot outsource that function.

The White House and Treasury unveiled details on MHA a few days before new delinquency figures were released showing that late payments are now at a record high, 7.88% for all types of residential loans and a staggering 21.88% for subprime.

The figures, compiled by MBA, represent late payments as of year-end.

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