Obama Administration Expands Mortgage-Assistance Program

(The Wall Street Journal) - The Obama administration said Friday it would give troubled homeowners another year to enroll in its signature mortgage-assistance program and increase payments to banks in an effort to get them to more aggressively reduce borrowers' loan balances.

The changes represent the latest overhaul of the administration's foreclosure prevention efforts, which President Barack Obama launched three years ago. The administration has fallen far short of its original goal of modifying three million to four million mortgages.

The administration's Home Affordable Modification Program (HAMP) had been set to expire at the end of this year but will now be extended until the end of 2013.

With the changes, "we will be able to assist a broader pool of struggling homeowners," said Tim Massad, assistant Treasury secretary for financial stability. He declined to predict how many additional homeowners would be enrolled as a result of the changes, but said, "We are determined to reach as many people who are still struggling out there as we can."

HAMP seeks to reduce borrowers' monthly payments to make them affordable, typically by extending the loan term and lowering their interest rate. But officials are making a much more aggressive push for banks to reduce loan balances to achieve that lower monthly payment, arguing that principal forgiveness is ultimately more successful.

Officials said they would triple the amount of taxpayer money that investors receive when they reduce loan balances. Currently, investors receive between six cents and 21 cents for every dollar of principal that is forgiven. Around 36,000 loans have been modified by reducing principal, with an average loan-balance reduction of $66,000.

Government-controlled mortgage-finance companies Fannie Mae and Freddie Mac and their regulator have not agreed to implement the principal forgiveness component of HAMP, arguing that doing so is too costly relative to other types of modifications.

But the Obama administration on Friday dialed up the pressure on their regulator to adopt the approach by offering to pay the firms the same incentives that private investors stand to earn.

A spokeswoman for the Federal Housing Finance Agency, which regulates Fannie and Freddie, did not immediately comment.

Officials also said they would tweak the program to enroll more homeowners whose financial troubles stem from other kinds of debts such as credit cards or medical bills.

The changes come as the Obama administration is seeking new ways to support the housing market. About $29 billion has been set aside from the Troubled Asset Relief Program for housing aid, but only about $3 billion has been spent as of the end of last year.

The administration announced HAMP nearly three years ago. The initiative has resulted in permanently reduced mortgage payments for about 750,000 homeowners.

In his State of the Union address Tuesday, President Barack Obama announced a plan that would allow all homeowners who are current on their mortgages to refinance. But full details have not been disclosed.

The Republican-controlled House last year passed a bill that would have scrapped the program, but it has not advanced in the Senate.

Read more: The Wall Street Journal