HUD Eyes Enticements for 2nd Lienholders

The Department of Housing and Urban Development is very close to finalizing guidelines for the Hope for Homeowners program that will allow second lienholders on restructured loans to share in future appreciation of the property, according to a Federal Housing Administration official. "This would be the one method" that the board overseeing the Hope program "can use to entice those subordinated lienholders to participate in the program," FHA director for single-family program development Meg Burns told a Mortgage Bankers Association compliance conference. "So we are looking at that particular feature and planning to share that appreciation with the existing subordinated lienholders." The foreclosure prevention program is targeted at rescuing borrowers with underwater mortgages. All subordinate liens much be extinguished before the homeowner is refinanced into a new FHA-insured mortgage with a 90% loan-to-value ratio. In a successful restructuring, HUD and the homeowner would split any appreciation 50-50 if the property is sold after five years. The Hope board still has to decide how much should be shared with second lienholders. However, the 10% equity cushion that is created by the writedown (to a 90% LTV ratio) cannot be shared with a second lienholder, Ms. Burns said.