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Hope for Homeowners Is Revamped

The House Financial Services Committee approved a bill to revamp the Federal Housing Administration’s Hope for Homeowners program and make it a real option for struggling borrowers to refinance underwater mortgages.

Since its startup last October, the H4H program has completed only 25 refinancings and it is generally considered a failure. Rep. Randy Neugebauer, R-Texas, offered an amendment to kill the program — arguing there are other loan modification programs that have proven to be effective.

House Financial Services Committee chairman Barney Frank, D-Mass., stressed the private Hope Now initiative by servicers and the Federal Deposit Insurance Corp. loan modification program both benefited from a series of changes over the past year.

Rep. Frank acknowledged the initial Hope for Homeowners legislation was too restrictive and he said the new H4H improvement bill (H.R. 787) will make it more effective. The bill eliminates the 3% upfront insurance premium and cuts the 1.5% annual premium in half. FHA could charge a 50 basis point to 75 basis point annual premium based on the borrower’s credit risk.

The bill also dropped a shared appreciation feature where the government could take 50% of the price increase when the house is sold. During last week’s markup of H.R. 787, Rep. Frank agreed to work with a Republican member on restoring the shared appreciation feature with the government taking a lower percentage.

The committee agreed to cap the servicer’s incentive fee for completing H4H refinancings at $1,000. Rep. Frank said he is open to changing the servicer fee so half is paid upfront and the other half is paid after the loan performs over a period of time.

The committee also approved two other bills, including a safe harbor bill (H.R. 788) that shields servicers that engage in loan modifications from investor lawsuits. The safe harbor applies to all loan modifications initiated before the end of 2011. Servicers would be required to regularly report their loan modification activities to the Treasury Department.

The other bill (H.R. 786) strengthens the Federal Deposit Insurance Corp. by making the recent temporary $250,000 increase in deposit insurance coverage permanent and increasing FDIC’s borrowing authority from $30 billion to $100 billion.

Rep. Frank said the three bills could become part of the bankruptcy package House leaders want to pass — possibly this week.

The mortgage industry continues to oppose the bankruptcy bill (H.R. 200) that recently cleared the House Judiciary Committee by a party-line vote of 21-15. Industry lobbyists are sure there are not enough votes in the House to pass the bankruptcy bill as a standalone measure.

By packaging H.R. 200 with the FDIC bill, it could garner more support, however. If not, Rep. Frank can attach the H4H, safe harbor and FDIC bills to other legislation or pass them separately.