Seconds Still Viewed As Major H4H Hurdle

Legislative changes made to the U.S. Department of Housing and Urban Development's (HUD) Hope for Homeowners program (H4H) appear unlikely to effect any meaningful improvement in the program's lackluster progress, a Wall Street Journal report suggests.

Large banks are balking at HUD's pressure for them to relinquish second liens, the WSJ says.

Amherst Securities Group Senior Managing Director Laurie Goodman told the paper that H4H's revamped compensation structure for second lienholders ‘won't be sufficient’ for them to write off seconds.

An unnamed HUD official was quoted as saying the department appreciates ‘the fact that there will be some second lienholders that won't go for’ H4H, but that the program will still serve a ‘substantial niche.’

Mary Coffin, head of Wells Fargo's servicing unit, indicated at an August trade show that H4H, which is geared toward helping underwater borrowers, has a place among servicers' loss mitigation tools but that borrower behavior may derail any opportunity to execute refinances under the program.

‘We want Hope for Homeowners, and there are borrowers who are exact fits,’ Coffin said, before noting a Wells Fargo finding that she described as "unique."

According to the bank's analysis, many borrowers are current on their second mortgages but defaulting on their firsts – a trend that runs counter to most people's assumptions. The chances of a lender agreeing to write off a performing second lien is slim, she said.

In July, Senate Banking Committee Chair Chris Dodd, D-Conn., and House Financial Services Committee Chair Barney Frank, D-Mass., pressed regulators to address whether banks are inflating the value of second mortgages on their balance sheets.

‘In recent discussions with servicers, investors in mortgage-backed securities and administration officials, it has become clear that one of the most significant impediments to the success of H4H is the unwillingness of subordinate lienholders to extinguish their liens as required for participation in this program, even in return for offers of reasonable compensation," Dodd and Frank wrote. "This is true, despite the fact that these subordinate liens may have minimal economic value."

The Federal Financial Institutions Examination Council (FFIEC), an interagency body that includes bank regulators, issued a statement in early August that touched on the possible conflicts of interest that arise when servicers are working both first and second liens on the same property. The FFIEC's instructions were for servicers to act always in the interests of a particular lien's owner or investor.

‘A servicer's decision to modify the first-lien mortgage should not be influenced by the potential impact of the modification on the subordinate lien loan and vice versa,’ the statement said.


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