WASHINGTON, Oct 1 (Reuters) - A federal program to refinance up to $300 billion in troubled U.S. mortgages began accepting applications on Wednesday but the effort will have only a limited impact on the national foreclosure crisis.
The HOPE for Homeowners program expands the federal government’s ability to guarantee home loans for borrowers facing a burdensome interest rate spike or who have seen a drop in the value of their homes.
The program is a “helpful step forward” in stabilizing the housing market and will help keep many families in their homes but it is not a cure-all, said Steve Preston, the Secretary of the Department of Housing and Urban Development which will administer the program.
“It must be part of a larger vision for the future, a vision that will help Americans keep their homes and remain financially secure,” Preston told reporters as he officially unveiled the plan.
Preston encouraged troubled borrowers to contact their lender or otherwise seek advice about whether the program would be suitable for them.
When the mortgage plan was enacted in July, it was the most sweeping Congressional action yet to arrest a mounting crisis of falling home values and a rising foreclosure rate.
In coming days, Congress is expected to vote on an even bolder plan that would authorize the Treasury Department to purchase up to $700 billion in soured mortgage investments.
The HOPE for Homeowners program has some requirements that will shield the government from losses but will also limit its impact.
Mortgage lenders or servicers must erase 10 percent of the home’s current value before the government will backstop the mortgage. The applicant must have made at least six monthly payments in the past and the new payments cannot amount to more than roughly a third of his monthly income.
As the plan was originally conceived, Fannie Mae FNM.N and Freddie Mac FRE.N will underwrite losses but that mechanism could be changed now that the two mortgage finance giants have been nationalized.
The government-sponsored enterprises were seized in early September and within weeks, Washington Mutual Inc WAMUQ.PK and Wachovia Corp. WB.N banks had failed as the worst housing crisis since the Great Depression tightened its grip. (Reporting by Patrick Rucker; Editing by Theodore d'Afflisio)
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