Some struggling homeowners left out of current U.S. government mortgage-aid programs because their home loans have been packaged into private securities could see their interest rates cut through a subsidy being considered by the Treasury Department.
Under the plan, the government would pay the difference between the new and original interest rates to the owners of the loans for five years in an effort to overcome investors’ objections to mortgage modifications, according to a person familiar with plan who asked not to be identified because the initiative is not final or public. Details on the cost of the program and how it would be paid for were not available.
The proposal is among efforts by the Obama administration to aid homeowners who remain under stress even as the housing market begins to recover. Borrowers who owe more than their homes are worth and who have mortgages that have been packaged into bonds issued by private securitizers have been unable to take advantage of existing government aid programs.
“It’s certainly beneficial to think about ways to help underwater borrowers,” said Tom Deutsch, executive director of the American Securitization Forum. “I’m just not sure anybody’s found the right solution yet.”
Borrowers who are current on their mortgage payments and who owe at least 25 percent more than the value of their properties would be eligible for the program, which would reset their loans to the average fixed rate as determined by a weekly survey by Freddie Mac.
About 930,000 homeowners with loans in so-called private- label securities are both underwater and current on their payments, according to data from JP Morgan Securities LLC.
The person familiar with the plan said the Obama administration would move forward with it only if officials become convinced that Congress won’t act first to expand aid for troubled borrowers. The rate-modification proposal is one of a number of concepts the administration is considering if legislative solutions aren’t available, said the person, who asked not to be named because the plans are not final and have not been made public.
Meanwhile, efforts are continuing in Congress to expand borrower aid.
Senator Dianne Feinstein, a California Democrat, has introduced a bill that would allow borrowers with loans in private-label securities to refinance into mortgages backed by the Federal Housing Administration. Democrat Jeff Merkley of Oregon wrote a measure requiring Fannie Mae and Freddie Mac to pay closing costs when borrowers refinance into a loan with a term of 20 years or less, allowing homeowners to rebuild equity more quickly.
Democrats Barbara Boxer of California and Robert Menendez of New Jersey are co-sponsoring a bill that would expand the government’s Home Affordable Refinancing Program for borrowers whose loans are backed by Fannie Mae and Freddie Mac. The government-sponsored enterprises have refinanced 1.7 million loans through HARP since it began in 2009.