HUD Buying Second Liens to Spur H4H Program

In an attempt to spur usage of its Hope for Homeowners refinancing program, the Department of Housing and Urban Development said Wednesday it will buy out second-lien holders - likely for pennies on the dollar. Speaking at the National Press Club, HUD secretary Steve Preston admitted that the H4H program has failed to catch fire with residential servicers looking to refinance struggling homeowners into new FHA insured mortgages. Mr. Preston unveiled several changes to the H4H program, including extending new loans with terms as long as 40 years (compared to 30 years previously). 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. The housing secretary said he is "confident the changes will increase participation significantly."