HOPE NOW Loan Modification Announcement
REMARKS PREPARED FOR
BRIAN MONTGOMERY, FHA COMMISSIONER
TUESDAY, NOVEMBER 11, 2008
Thank you and good afternoon. Thank you all for coming. And I want to express my appreciation to all of the participants here with us.
The housing crisis continues to provide enormous challenges for America. And it is a crisis that will not end easily or quickly. So, we have to explore every possibility for improvement in the market. We face a crisis that has no silver bullet solution and will only be corrected by powerful responses throughout the entire continuum of the mortgage process.
As you know, we've been working on a number of actions that we think will all play a role in addressing the crisis, efforts such as:
- making mortgages more understandable,
- increasing financial literacy,
- promoting the use of housing counselors to help people through the process and find mortgages they can afford,
- expanding FHA so more low-income Americans can receive safe and affordable mortgages,
- providing grants through the Neighborhood Stabilization Program to renovate and rehabilitate vacant or abandoned housing, and
- initiating other actions to provide confidence in the marketplace.
In combination, there is now a stronger continuum of solutions that equals a comprehensive response to the foreclosure crisis.
And the announcement made today by HOPE NOW significantly strengthens the private sector response. The mortgage industry has stepped forward with direct and valuable actions to reach a large number of at-risk borrowers who can keep their homes with a new affordable mortgage.
By reducing documentation requirements and simplifying the analysis, potentially hundreds of thousands of delinquent borrowers with conventional and subprime loans who can afford a payment that is equal to 38 percent of their gross monthly will receive modification offers in the mail. Getting to an affordable monthly payment can happen in several ways:
- the repayment time can be extended for 40 years;
- the interest rate may be lowered; or
- the principal may be reduced with the balance added to the back of the loan.
These actions will allow many delinquent borrowers (those who are already 90 days or more past due on their loan or in the process of foreclosure) an opportunity to keep their homes, while they recover from misfortune, job loss, or financial hardship. This will help homeowners weather the turbulence in the housing market and stabilize communities by substantially reducing the number of vacant, foreclosed homes available for sale.
And loan modifications are not a gift�the principle cut on the front end will be paid at the end of the loan, either in extended payments or a balloon payment. This is not loan forgiveness�the loans will be paid, but under terms that are affordable for borrowers.
These actions complement FHA's own efforts to provide expansive loss mitigation for FHA insured borrowers. As you may know, FHA has been very aggressive in responding to potential foreclosures, saving about 300,000 Americans from foreclosure in the last three years. In Fiscal Year 2008 alone, more than 98,000 seriously delinquent FHA borrowers were able to retain their homes.
FHA has also stepped forward to offer refinance opportunities for borrowers with high risk conventional loans through FHASecure and HOPE for Homeowners. And we will continue to do more. For nearly three years, we have urged Congress to allow FHA to offer a 40-year mortgage product.
I want to stress that this announcement is the product of an extensive partnership across-government and with the private sector. I would like to thank Secretary (Henry) Paulson, Fed Chairman Ben Bernanke, and FDIC Chairwoman Sheila Bair for their hard work, leadership, and advocacy.
Now, what does this plan mean? It is one more way to help people save their homes. It will help provide the stability and security that will help address many of the corollary problems of foreclosure, such as not adding to high inventory, removing some of the stress on affordable housing, helping reduce uncertainty and fear, and shoring up our private mortgage market. This plan will help people in hard-hit areas of the country, such as Stockton and Seattle, Denver and Detroit, Chicago and Columbus.
For those in the foreclosure process, help is at hand.