WASHINGTON — The Department of Housing and Urban Development is set to reveal details about a new program to help prevent foreclosures today, but many of its sweetest attributes for lenders are tied up in the limbo of the government's bailout plan.
The department plans to release its implementation language for the Hope for Homeowners program, which allows delinquent borrowers whose homes are worth less than their mortgages to refinance into Federal Housing Administration-backed loans.
Lenders and servicers are expected to pore over the specifics of the program, which include underwriting and eligibility standards, but HUD had counted on passage of the Emergency Economic Stabilization Act of 2008 to encourage more lenders to participate.
Under the housing package enacted in July, lenders considering making new loans to struggling borrowers through the program would not have any up-front financial incentive to make the loans. They would only be able to take a share in the possible future appreciation of the borrower's home.
But under the bailout bill, the FHA would be authorized to pay the new lender up front instead.
If the bailout bill passes, the government facility created to buy and hold up to $700 billion of troubled assets also could purchase loans eligible for the Hope for Homeowners program, increasing participation.
"What could happen this week and what's evolved this week because of the Troubled Asset Relief Program is it could be a better tool," said Brian Chappelle, a former HUD official who is now a partner at Potomac Partners LLC. "It could be a game-changer."
If the government were able to purchase securitized mortgages through that program, it would also be able to take a long view on how to maximize the loan's value. Under the bailout bill, the government is required to engage in foreclosure prevention, including encouraging servicers whose loans are bought by the Treasury Department to use the new FHA program.
Rod Dubitsky, the managing director of Credit Suisse Group's asset-backed securities research division, said the program could be an alternative to selling securities to the Tarp fund for lenders with bad loans on their books.
"Tarp could have fed whole loans to the Hope program, as well as using their buying power to encourage securitization trusts to cooperate with Hope program," Mr. Dubitsky said.
The Hope for Homeowners Program specifies that a mortgage holder would write down the loan to 87% of the home's current value in exchange for having a second lender originate a new loan to the homeowner.
