Summary

Introduction

Home prices rose rapidly throughout some regions of the United States beginning in 2001. Housing has traditionally been seen as a safe investment that can offer an opportunity for high returns, and rapidly rising home prices reinforced this view. During this housing "boom," many people decided to buy homes or take out second mortgages in order to access their increasing home equity. Furthermore, rising home prices and low interest rates contributed to a sharp increase in people refinancing their mortgages. Some refinanced to access lower interest rates and lower their mortgage payments, while many also used the refinancing process to take out larger mortgages in order to access their home equity. For example, between 2000 and 2003, the number of refinanced mortgage loans jumped from 2.5 million to over 15 million, and the Federal Reserve estimated that 45% of refinances included households taking equity out of their homes.² Around the same time, subprime lending also began to increase, reaching a peak between 2004 and 2006.³ (See the nearby text box for a description of prime and subprime mortgages.)

Beginning in 2006 and 2007, home sales started to decline and home prices stopped rising and began to fall in many regions. The rates of homeowners becoming delinquent on their mortgages began to increase, and the percentage of home loans in the foreclosure process in the United States began to rise rapidly beginning around the middle of 2006. Although not all homes in the foreclosure process will end in a foreclosure completion, an increase in the number of loans in the foreclosure process is generally accompanied by an increase in the number of homes on which a foreclosure is completed. According to the Mortgage Bankers Association (MBA), an industry group, about 1% of all home loans were in the foreclosure process in the second quarter of 2006. By the fourth quarter of 2009, the rate had more than quadrupled to over 4.5%, and it peaked in the fourth quarter of 2010 at about 4.6%. Since then, the percentage of mortgages in the foreclosure process has started to decrease, but still remains high by historical standards. In the first quarter of 2015, the rate of loans in the foreclosure process was about 2.2%.

Q1 2001–Q1 2015

Source: Figure created by CRS using data from the Mortgage Bankers Association.

Notes: The Mortgage Bankers Association (MBA) is one of several organizations that reports delinquency and foreclosure data. MBA estimates that its data cover between 80%-90% of outstanding first-lien mortgages on single-family properties.

The foreclosure rate for subprime loans has always been higher than the foreclosure rate for prime loans. For example, in the second quarter of 2006, just over 3.5% of subprime loans were in the foreclosure process compared to less than 0.5% of prime loans. However, both prime and subprime loans have seen increases in foreclosure rates over the past several years. Like the foreclosure rate for all loans combined, the foreclosure rates for prime and subprime loans both more than quadrupled after 2006, with the rate of subprime loans in the foreclosure process increasing to over 15.5% in the fourth quarter of 2009 and the rate of prime loans in the foreclosure process increasing to more than 3% over the same time period. As of the first quarter of 2015, the rate of subprime loans in the foreclosure process was about 9%, while the rate of prime loans in the foreclosure process was about 1.3%.

In addition to mortgages that were in the foreclosure process, an additional 2% of all mortgages were 90 or more days delinquent but not yet in foreclosure in the first quarter of 2015. These are mortgages that are in default, but for one reason or another, the mortgage servicer has not started the foreclosure process yet. Such reasons could include the volume of delinquent loans that the servicer is handling, delays due to efforts to modify the mortgage before beginning foreclosure, or voluntary pauses in foreclosure activity put in place by the servicer. Considering mortgages that are 90 or more days delinquent but not yet in foreclosure, as well as mortgages that are actively in the foreclosure process, may give a more complete picture of the number of mortgages that are in danger of foreclosure completions.

Losing a home to foreclosure can have a number of negative effects on a household. For many families, losing a home can mean losing the household's largest store of wealth. Furthermore, foreclosure can negatively impact a borrower's creditworthiness, making it more difficult for him or her to buy a home in the future. Finally, losing a home to foreclosure can also mean that a household loses many of the less tangible benefits of owning a home. Research has shown that these benefits might include increased civic engagement that results from having a stake in the community, and better health, school, and behavioral outcomes for children.⁴

Some homeowners might have difficulty finding a place to live after losing their home to foreclosure. Many will become renters. However, some landlords may be unwilling to rent to families whose credit has been damaged by a foreclosure, limiting the options open to these families. There can also be spillover effects from foreclosures on current renters. Renters living in buildings where the landlord is facing foreclosure may be required to move, sometimes on very short notice, even if they are current on their rent payments.⁵ As more homeowners become renters and as more current renters are displaced when their landlords face foreclosure, pressure on local rental markets may increase, and more families may have difficulty finding affordable rental housing. Some observers have also raised the concern that high numbers of foreclosures can contribute to homelessness, either because families who lose their homes have trouble finding new places to live or because the increased demand for rental housing makes it more difficult for families to find adequate, affordable units. However, researchers have noted that a lack of data makes it difficult to measure the extent to which foreclosures contribute to homelessness.⁶

If foreclosures are concentrated, they can also have negative impacts on communities. Many foreclosures in a single neighborhood may depress surrounding home values.⁷ If foreclosed homes stand vacant for long periods of time, they can attract crime and blight, especially if they are not well-maintained. Concentrated foreclosures also place pressure on local governments, which can lose property tax revenue and may have to step in to maintain vacant foreclosed properties.

There are many reasons that a household might become delinquent on its mortgage payments. Some borrowers may have simply taken out loans on homes that they could not afford. However, many homeowners who believed they were acting responsibly when they took out a mortgage nonetheless find themselves facing foreclosure. Factors that can contribute to a household having difficulty making its mortgage payments include changes in personal circumstances, which can be exacerbated by macroeconomic conditions, and features of the mortgages themselves.

Changes in Household Circumstances

Changes in a household's circumstances can affect its ability to pay its mortgage. For example, a number of events can leave a household with a lower income than it anticipated when it bought its home. Such changes in circumstances can include a lost job, an illness, or a change in family structure due to divorce or death. Families that expected to maintain a certain level of income may struggle to make payments if a household member loses a job or faces a cut in pay, or if a two-earner household becomes a single-earner household. Unexpected medical bills or other unforeseen expenses can also make it difficult for a family to stay current on its mortgage.

Furthermore, sometimes a change in circumstances means that a home no longer meets a family's needs, and the household needs to sell the home. These changes can include having to relocate for a job or needing a bigger house to accommodate a new child or an aging parent. Traditionally, households that needed to move, or who experienced a decline in income, could usually sell their existing homes. However, the decline in home prices that began around 2008 in many communities nationwide left many households in a negative equity position, or "underwater," meaning that they owe more on their mortgages than the houses are now worth.⁸ This limits homeowners' ability to sell their homes for enough money to pay off their mortgages if they have to move; many of these families are effectively trapped in their current homes and mortgages because they cannot afford to sell their homes at a loss.

The risks presented by changing personal circumstances have always existed for anyone who took out a loan, but deteriorating macroeconomic conditions, such as falling home prices and increasing unemployment, have made families especially vulnerable to losing their homes for such reasons. The fall in home values that has left some homeowners owing more than the value of their homes makes it difficult for homeowners to sell their homes in order to avoid a foreclosure if they experience a change in circumstances, and it increases the incentive for homeowners to walk away from their homes if they can no longer afford their mortgage payments. Along with the fall in home values, another macroeconomic trend accompanying the decrease in home values and increase in foreclosures was high unemployment. More households experiencing job loss and the resultant income loss made it difficult for many families to keep up with their monthly mortgage payments.

Mortgage Features

Borrowers might also find themselves having difficulty staying current on their loan payments due in part to features of their mortgages. In the years preceding the sharp increase in foreclosure rates, there had been an increase in the use of alternative mortgage products whose terms differ significantly from the traditional 30-year, fixed interest rate mortgage model.⁹ While borrowers with traditional mortgages are not immune to delinquency and foreclosure, many of these alternative mortgage features seem to have increased the risk that a homeowner will have trouble staying current on his or her mortgage. Many of these loans were structured to have low monthly payments in the early stages and then adjust to higher monthly payments depending on prevailing market interest rates and/or the length of time the borrower held the mortgage. Furthermore, many of these mortgage features made it more difficult for homeowners to quickly build equity in their homes. Some examples of the features of these alternative mortgage products are listed below.¹⁰

While all of these types of loans can make sense for certain borrowers in certain circumstances, many of these loan features began to be used more widely and may have played a role in the recent increase in foreclosure rates. Some homeowners were current on their mortgages before their monthly payments increased due to interest rate resets or the end of option periods. Some built up little equity in their homes because they were not paying down the principal balance of their loan or because they had not made a down payment. Borrowers without sufficient equity find it difficult to take advantage of options such as refinancing into a more traditional mortgage if monthly payments become too high or selling the home if their personal circumstances change. Stagnant or falling home prices in many regions also hampered borrowers' ability to build equity in their homes, and mortgage payment increases combined with house price declines resulted in limited options for some troubled borrowers.

Repayment Plans

A repayment plan allows a delinquent borrower to regain current status on his loan by paying back the payments he or she has missed, along with any accrued late fees. This is different from a loan modification, which changes one or more of the terms of the loan (such as the interest rate). Under a repayment plan, the missed payments and late fees may be paid back after the rest of the loan is paid off, or they may be added to the existing monthly payments. The first option increases the time that it will take for a borrower to pay back the loan, but his or her monthly payments will remain the same. The second option may result in an increase in monthly payments. Repayment plans may be a good option for homeowners who experienced a temporary loss of income but are now financially stable. However, since they do not generally make payments more affordable, repayment plans are unlikely to help homeowners with unaffordable loans avoid foreclosure in the long term.

Interest Rate Reductions

One form of a loan modification is when the lender voluntarily lowers the interest rate on a mortgage. This is different from a refinance, in which a borrower takes out a new mortgage with a lower interest rate and uses the proceeds from the new loan to pay off the old loan. Unlike refinancing, a borrower does not have to pay closing costs or qualify for a new loan to get a mortgage modification with an interest rate reduction, which can make interest rate reductions a good option for borrowers who owe more on their mortgages than their homes are worth. The interest rate can be reduced permanently, or it can be reduced for a period of time before increasing again to a certain fixed point. Lenders can also freeze interest rates at their current level in order to avoid impending interest rate resets on adjustable rate mortgages. Interest rate modifications are relatively costly to the lender or mortgage investor because they reduce the amount of interest income that the lender or investor will receive, but they can be effective at reducing monthly payments to an affordable level.

Extended Loan Term/Extended Amortization

Another type of loan modification that can lower monthly mortgage payments is extending the amount of time over which the loan is paid back. While extending the loan term increases the total cost of the mortgage for the borrower because more interest will accrue, it allows monthly payments to be smaller because they are paid over a longer period of time. Most mortgages in the United States have an initial loan term of 30 years; extending the loan term from 30 to 40 years, for example, could result in a lower monthly mortgage payment for the borrower.

Principal Forbearance

Principal forbearance means that a lender or servicer removes part of the principal from the portion of the loan balance that is subject to interest, thereby lowering borrowers' monthly payments by reducing the amount of interest owed. The portion of the principal that is subject to forbearance still needs to be repaid by the borrower in full, usually after the interest-bearing part of the loan is paid off or when the home is sold. Because principal forbearance does not actually change any of the loan terms, it resembles a repayment plan more than a loan modification.

Principal Forgiveness

Principal forgiveness, also called principal reduction or a principal write-down, is a type of mortgage modification that lowers borrowers' monthly payments by forgiving a portion of the loan's principal balance. The forgiven portion of the principal never needs to be repaid. Because the borrower now owes less, his or her monthly payment will be smaller. This option may be costlier for lenders or mortgage investors than other types of mortgage modifications, but it can help borrowers achieve affordable monthly payments, as well as increase the equity that borrowers have in their homes and therefore increase their desire to stay current on the mortgage and avoid foreclosure.¹³

There has been broad bipartisan consensus that the rapid rise in foreclosures has had negative consequences on households and communities.¹⁴ There has been less agreement among policymakers about how much the federal government should do to prevent foreclosures. Proponents of enacting government policies and using government resources to prevent foreclosures argue that, in addition to assisting households experiencing hardship, such action may prevent further damage to home values and communities that can be caused by concentrated foreclosures. Supporters also suggest that preventing foreclosures may help stabilize the economy as a whole.

Opponents of government foreclosure prevention programs argue that foreclosure prevention should be worked out between lenders and borrowers without government interference. Opponents express concern that people who do not really need help, or who are not perceived to deserve help, could unfairly take advantage of government foreclosure prevention programs. They argue that taxpayers' money should not be used to help people who can still afford their loans but want to get more favorable mortgage terms, people who may be seeking to pass their losses on to the lender or the taxpayer, or people who knowingly took on mortgages that they could not afford.

Despite the concerns surrounding foreclosure prevention programs, and disagreement over the proper role of the government in preserving homeownership, since 2007 the federal government has implemented a variety of temporary initiatives to attempt to address the high rates of residential mortgage foreclosures. Some of these initiatives have been enacted by Congress, while others were created administratively by the Bush and Obama Administrations.

In addition to federal efforts to address mortgage foreclosures, many state and local governments have also implemented a range of initiatives to reduce the number of foreclosures in recent years. The private sector has also pursued foreclosure prevention efforts, including creating the HOPE NOW Alliance, a voluntary alliance of mortgage servicers, lenders, investors, counseling agencies, and others that formed in October 2007 with the encouragement of the federal government to engage in active outreach efforts to troubled borrowers.¹⁵ While many private lenders and mortgage servicers participate in federal foreclosure prevention initiatives, many also have their own programs or procedures in place to work with borrowers who are having difficulty making their mortgage payments. This report focuses on federal efforts to prevent foreclosure, and does not address these state, local, and private sector efforts.

On February 18, 2009, President Obama announced the Making Home Affordable (MHA) program.¹⁷ Making Home Affordable includes separate initiatives to make it easier for certain homeowners with little or no equity in their homes to refinance their mortgages and to help certain troubled borrowers obtain affordable loan modifications. These initiatives are known as the Home Affordable Refinance Program (HARP) and the Home Affordable Modification Program (HAMP), respectively. HARP is described in this subsection, and HAMP is described in the following subsection.

Program Description

HARP allows certain homeowners with mortgages owned or guaranteed by Fannie Mae or Freddie Mac¹⁸ to refinance their mortgages in order to take advantage of lower interest rates, even if the amount owed on the mortgage exceeds 80% of the value of the home. Generally, borrowers who owe more than 80% of the value of their homes have difficulty refinancing their mortgages, and therefore benefitting from lower interest rates, because they do not have enough equity in their homes. By allowing borrowers who owe more than 80% of the value of their homes to refinance their mortgages, the plan is meant to help qualified borrowers lower their monthly mortgage payments to a level that is more affordable. Rather than targeting homeowners who are behind on their mortgage payments, HARP targets homeowners who have kept up with their payments but have lost equity in their homes due to falling home prices.

Originally, qualified borrowers were eligible to refinance under this program if they owed up to 105% of the value of their homes (that is, if the loan-to-value ratio, or LTV, was at or below 105%). In July 2009, the Administration announced that it would expand the program to include borrowers who owe up to 125% of the value of their homes. In October 2011, it was announced that the loan-to-value ratio cap would be removed entirely.

Basic Eligibility Criteria

In addition to having a mortgage owned or guaranteed by Fannie Mae or Freddie Mac, other eligibility criteria apply.¹⁹ For example, a borrower must have a mortgage on a single-family home, the original mortgage must have been closed on or before May 31, 2009,²⁰ and the borrower must be current on the mortgage payments, among other eligibility criteria. The program is voluntary, and lenders are not required to refinance mortgages through HARP even if the mortgages meet all of the eligibility criteria.

HARP 2.0

In October 2011, the Federal Housing Finance Agency (FHFA) announced a number of changes to HARP designed to allow more people to qualify for the program.²¹ These changes are commonly referred to as "HARP 2.0." One of these changes was removing the cap on the loan-to-value ratio, which had previously limited eligibility for the program to those with loan-to-value ratios up to 125%. Other changes included eliminating or reducing certain fees paid by borrowers who refinance through HARP, waiving certain representations and warranties made by lenders on the original loans (intended to make lenders more likely to participate in HARP by releasing them from some responsibility for any defects in the original loan), and encouraging greater use of automated valuation models instead of property appraisals in order to streamline the refinancing process.²²

HARP Results to Date

(as of February 2015)

Fannie Mae

Freddie Mac

Total

LTV over 80% up to 105%

1,379,099

924,032

2,303,131

LTV over 105% up to 125%

315,879

251,186

567,065

LTV over 125%

250,740

170,782

421,522

Total

1,945,718

1,346,000

3,291,718

Program End Date

HARP is currently scheduled to be available until December 31, 2016.²⁴

The mortgage modification piece of the Administration's Making Home Affordable program is the Home Affordable Modification Program (HAMP).²⁵ It is primarily administered by the Department of the Treasury. Fannie Mae and Freddie Mac each issue their own program guidance for the mortgages that they own or guarantee.²⁶

Program Description

Through HAMP, the government provides financial incentives to participating mortgage servicers that provide loan modifications to eligible troubled borrowers in order to reduce the borrowers' monthly mortgage payments to no more than 31% of their monthly income. HAMP is voluntary for mortgage servicers,²⁷ but once a servicer signs an agreement with Treasury to participate in the program, that servicer is bound by the rules of the program and is required to modify eligible mortgages that it services according to the program guidelines.

For mortgages that are modified under HAMP, servicers reduce borrowers' payments by reducing the interest rate, extending the loan term, and forbearing principal, in that order, as necessary to reach the target payment ratio of 31% of monthly income. (Servicers are permitted to reduce mortgage principal as part of a HAMP modification, but are not required to do so.) Servicers can reduce interest rates to as low as 2%. The new interest rate must remain in place for five years; after five years, if the interest rate is below the market rate at the time the modification agreement was completed, the interest rate can rise by one percentage point per year until it reaches that market rate. (See the nearby text box on "HAMP Interest Rate Adjustments.") Borrowers must make modified payments on time during a three-month trial period before the modification can be converted to permanent status.

The government provides financial incentives to servicers, investors, and borrowers for participation. Servicers receive an upfront incentive payment for each successful permanent loan modification and a "pay-for-success" payment for up to three years if the borrower remains current after the modification and the mortgage payment was reduced by at least 6%. The borrower can also receive a "pay-for-success" incentive payment (in the form of principal reduction) for up to five years if he or she remains current after the modification is finalized, as well as an additional principal reduction payment at the end of the sixth year after modification if the loan is in good standing. Investors receive the payment cost-share incentive (that is, after the investor bears the cost of reducing the monthly payment to 38% of monthly income, the government will pay half the cost of further reducing the monthly mortgage payment from 38% to 31% of monthly income). Investors can also receive incentive payments for loans modified before a borrower becomes delinquent and for modifications in areas with declining home prices ("Home Price Decline Protection" incentives), provided that the borrower's monthly mortgage payment is reduced by at least 6%.²⁸

Treasury has made a number of changes to the rules governing HAMP since the program began. Some of these changes have been relatively minor, while others have been more significant. Treasury communicates changes to the HAMP requirements to servicers in documents called Supplemental Directives.²⁹ In addition, Treasury has implemented several additional HAMP components to attempt to assist certain groups, such as unemployed borrowers or borrowers with negative equity, which are described in the "Additional HAMP Components" section of this report.

Basic Eligibility Criteria

The requirements governing HAMP are complex, and a number of factors can impact whether or not a specific borrower qualifies for the program. However, there are several basic eligibility criteria that a borrower must meet in order to qualify for a standard HAMP modification, including the following:

• a borrower must have a mortgage on a single-family (one-to-four unit) property that was originated on or before January 1, 2009,
• the borrower must live in the home as his or her primary residence (this criterion does not necessarily have to be met to qualify for a certain type of HAMP modification, described in the "HAMP "Tier 2"" section below),
• the unpaid principal balance on the mortgage must be no greater than $729,750 for a one-unit property,
• the borrower must currently be paying more than 31% of his monthly gross income toward mortgage payments,
• the borrower must be experiencing a financial hardship that makes it difficult to remain current on the mortgage. Borrowers need not already be in default on their mortgages in order to qualify, but default must be "reasonably foreseeable," and
• the estimated net present value of a modification must result in greater value for the mortgage investor than the net present value of pursing a foreclosure (this "net present value test" is described in more detail below).

More detailed eligibility criteria and program requirements are included in Treasury's Making Home Affordable Handbook and related policy directives.³¹ Treasury's requirements govern mortgages that are not backed by Fannie Mae and Freddie Mac; Fannie and Freddie issue their own program requirements for the mortgages that they own or guarantee.

Servicers participating in HAMP conduct a "net present value test" (NPV test) on eligible mortgages that compares the expected financial returns to investors from doing a loan modification to the expected financial returns from pursuing a foreclosure.³² If the expected returns from a loan modification are greater than those from foreclosure, servicers are required to reduce borrowers' payments to no more than 38% of monthly income. The government then shares half the cost of reducing borrowers' payments from 38% of monthly income to 31% of monthly income. Servicers are not required to modify mortgages with negative net present value results.

HAMP Funding

The Administration originally estimated that HAMP would cost $75 billion. Of this amount, $50 billion was to come from Troubled Asset Relief Program (TARP) funds,³³ and $25 billion was to come from Fannie Mae and Freddie Mac for the costs of modifying mortgages that those entities own or guarantee.³⁴

Treasury later revised its estimate of the amount of TARP funds that will be used for HAMP, and has used some of the $50 billion originally allocated to HAMP to help pay for other foreclosure-related programs (the Hardest Hit Fund and the FHA Refinance program, both described in later sections of this report). Ultimately, Treasury committed about $38 billion of TARP funds to its foreclosure prevention programs, rather than the initial $50 billion. Of this amount, nearly $30 billion is committed to HAMP and its related programs, $7.6 billion is committed to the Hardest Hit Fund, and just over $100 million is committed to the FHA Short Refinance Program.³⁵

As of May 1, 2015, $15.9 billion of the TARP funding committed to these foreclosure prevention programs has been disbursed. Of that amount, $10.8 billion has been disbursed for HAMP and its related programs.³⁶

The Administration originally estimated that HAMP could eventually help up to between 3 million and 4 million homeowners. The Treasury Department releases quarterly reports detailing the program's progress.³⁷ These reports offer a variety of information, including the number of overall trial and permanent modifications made under HAMP and the number of each that are currently active, the number of trial and permanent modifications made by individual servicers, and the number of trial and permanent modifications underway in each state.³⁸ (As noted earlier, borrowers must successfully complete a three-month trial period before the modification is converted to permanent status.)

(as of December 2014)

Trial Modifications

Permanent Modifications

Total

All Started

2,279,407

1,448,456

N/A

Currently Active

40,486

968,202

1,008,688

According to Treasury, the median HAMP modification results in a decrease of about $500 per month in a borrower's monthly mortgage payment.⁴⁰

After HAMP had been in place for several months, many observers began to express concern at the high number of trial modifications that were being canceled rather than converting to permanent status and the length of time that it was taking for trial modifications to become permanent. In response to these concerns, Treasury took a number of steps to attempt to facilitate the conversion of trial modifications to permanent modifications, including outreach efforts to borrowers to help them understand and meet the program's documentation requirements and increased reporting requirements and monitoring of servicers.⁴¹ Most notably, since June 1, 2010, Treasury has required servicers to have documented income information from borrowers before offering a trial modification and to verify that information before a borrower can be approved for a trial period plan.⁴²

Prior to June 2010, Treasury had allowed servicers to approve borrowers for trial modifications on the basis of stated income information in order to get trial modifications started more quickly, but the servicers had to verify this information before a modification could become permanent. In cases where the borrowers' stated income information differed from the documented information, servicers often had to re-evaluate borrowers for the program (for example, by running a new NPV test), which sometimes took additional time or resulted in borrowers who had been approved for a trial modification being denied for a permanent modification.

Requiring verified information before a trial modification could begin was expected to result in more trial modifications converting to permanent modifications going forward. As of the end of 2014, Treasury reported that 91,000 trial modifications had been canceled since the requirement for servicers to verify income upfront had gone into effect in June 2010. This is compared to nearly 700,000 trial modifications that were canceled prior to June 2010.⁴³

Treasury's Assessments of Servicer Performance

In its April 2011 monthly report on HAMP, Treasury released comprehensive results of an examination of the performance of the ten largest servicers participating in HAMP, and indicated that it would continue to release the results of these servicer assessments on a quarterly basis. As a result of this first examination, Treasury announced that it was going to withhold incentive payments to three of the largest participating servicers due to findings that the servicers' performance under the program was not meeting Treasury's standards. The servicers, Bank of America, JP Morgan Chase, and Wells Fargo, were all found to need "substantial" improvement in several areas.⁴⁴ Treasury said that it would reinstate the incentive payments when the servicers' performance improved and was no longer found to need substantial improvement. The remaining 6 of the 10 largest servicers were found to need moderate improvement, but Treasury did not withhold incentive payments from those servicers.⁴⁵

Treasury's subsequent assessments of servicer performance generally showed improvement. The results of the second round of quarterly servicer assessments, included in the July 2011 monthly report, found that Bank of America and JP Morgan Chase continued to need substantial improvement,⁴⁶ and the October 2011 monthly report found that only one servicer, JP Morgan Chase, was found to need substantial improvement.⁴⁷ By the January 2012 monthly report, no servicers were found to need substantial improvement; seven were found to need moderate improvement, and two were found to need minor improvement.⁴⁸ As of the end of 2014, seven servicers were included in the assessment. None were found to need substantial improvement, five were found to need moderate improvement, and two were found to need minor improvement.⁴⁹

Modifications can be made through HAMP until December 31, 2016,⁵⁰ unless the program is terminated before that date.⁵¹

Since the program's announcement, Treasury has established a number of additional components or subprograms that operate under HAMP. The subprograms that operate under HAMP include the following:⁵²

Second Lien Modification Program (2MP)⁵³

Many borrowers have second mortgages on their homes. Second mortgages have the potential to make loan modifications more difficult because (1) modifying the first lien may not reduce households' total monthly mortgage payments to an affordable level if the second mortgage remains unmodified, and (2) holders of primary mortgages may be hesitant to modify the mortgage if the second mortgage holder does not agree to re-subordinate the second mortgage to the first mortgage or to modify the second mortgage as well. Under 2MP, if the servicer of the second lien is participating in 2MP, then that servicer must agree either to modify the second lien in accordance with program guidelines, or to extinguish the second lien entirely in exchange for a lump sum payment, when a borrower's first mortgage is modified under HAMP. (Servicers sign up to participate in 2MP separately from signing up to participate in HAMP.)

Participating servicers and investors can receive financial incentives for modifying or extinguishing second liens under 2MP, and borrowers who remain current on both their HAMP modification and 2MP modification can receive "pay-for-success" incentives payments for up to five years.

2MP was first announced in August 2009. Treasury reports that about 85,000 second-lien modifications were active under 2MP as of the end of 2014.⁵⁴

Home Affordable Foreclosure Alternatives Program (HAFA)⁵⁵

Through the Home Affordable Foreclosure Alternatives Program (HAFA), when a borrower meets the basic eligibility criteria for HAMP, but does not ultimately qualify for a modification, does not successfully complete the trial period, or defaults on a HAMP modification, participating servicers can receive incentive payments for completing a short sale or a deed-in-lieu of foreclosure as an alternative to foreclosure.⁵⁶ Servicers can receive financial incentive payments for each short sale or deed-in-lieu that is successfully executed, and borrowers can receive financial incentive payments to help with relocation expenses. Investors can receive partial reimbursement if they agree to share a portion of the proceeds of the short sale with any subordinate lienholders.⁵⁷ (The subordinate lienholders, in turn, must release their liens on the property and waive all claims against the borrower for the unpaid balance of the subordinate mortgages.) In order to attempt to streamline the process of short sales and deeds-in-lieu of foreclosure under HAFA, Treasury provides standardized documentation and processes for participating servicers to use.

HAFA went into effect on April 5, 2010, although servicers had the option to begin implementing the program before this date. Treasury reports that about 341,000 HAFA transactions had been completed as of the end of 2014.⁵⁸ Most of these transactions have been short sales rather than deeds-in-lieu of foreclosure.

Home Affordable Unemployment Program (UP)

The Home Affordable Unemployment Program (UP) targets borrowers who are unemployed. Under UP, participating servicers are required to offer forbearance periods to unemployed borrowers who apply for HAMP and meet the UP eligibility criteria before evaluating those borrowers for HAMP. The forbearance period lasts for a minimum of 12 months, or until the borrower becomes re-employed.⁵⁹ Borrowers' mortgage payments are lowered to 31% or less of their monthly income through principal forbearance during this time period.

Principal Reduction Alternative (PRA)

Under the Principal Reduction Alternative (PRA), participating servicers are required to consider reducing principal balances as part of HAMP modifications for homeowners who owe at least 115% of the value of their home. This applies to mortgages that are not backed by Fannie Mae and Freddie Mac. Fannie's and Freddie's regulator, the Federal Housing Finance Agency (FHFA), currently does not allow principal reduction for mortgages that Fannie Mae or Freddie Mac own or guarantee.

In early 2012, Treasury announced that some borrowers who are not eligible for a standard HAMP modification may be eligible for an expanded version of HAMP, referred to as HAMP Tier 2.⁶⁴ HAMP Tier 2 represents an alternative to the standard HAMP modification (now referred to as HAMP Tier 1), rather than a replacement of the standard HAMP modification.

In addition to the eligibility requirements being different for HAMP Tier 2, the way in which servicers modify mortgages and the incentive payment structure also differ. Only mortgages that are not backed by Fannie Mae or Freddie Mac are eligible for HAMP Tier 2.⁶⁵

HAMP Tier 2 went into effect in June 2012. According to Treasury, a total of about 110,000 HAMP Tier 2 trial modifications had been started, and about 85,000 HAMP Tier 2 permanent modifications had been started, as of the end of 2014.⁶⁶

State Funding Allocations

(dollars in millions)

State

% of Total Allocation Drawn from Treasury as of February 28, 2015

Alabama

$162.5

$40.0

25%

Arizona

$267.8

$155.8

58%

California

$1,975.3

$1,217.5

62%

Florida

$1,057.8

$596.3

56%

Georgia

$339.3

$194.0

57%

Illinois

$445.6

$395.0

87%

Indiana

$221.7

$110.7

50%

Kentucky

$148.9

$104.0

70%

Michigan

$498.6

$304.1

61%

Mississippi

$101.9

$65.8

65%

Nevada

$194.0

$112.0

58%

New Jersey

$300.5

$245.5

82%

North Carolina

$482.8

$395.2

82%

Ohio

$570.4

$499.2

88%

Oregon

$220.0

$220.0

100%

Rhode Island

$79.4

$79.4

100%

South Carolina

$295.4

$162.5

55%

Tennessee

$217.3

$177.3

82%

Washington, DC

$20.7

$18.2

88%

Total

$7,600.0

$5,092.5

67%

State Hardest Hit Fund Programs

As described, states had flexibility to design different types of programs using their Hardest Hit Fund allocations, as long as their programs met the purposes of the Emergency Economic Stabilization Act and were approved by Treasury. State HFAs may operate one or more programs with their HHF funds. (States that received funding in the third round are required to use those funds to assist unemployed homeowners.) In general, the types of programs that states have implemented fall under a few broad categories: standard mortgage modification programs, principal reduction programs, mortgage reinstatement programs (to help borrowers pay arrearages and late fees to bring a mortgage current again), programs to help unemployed homeowners with mortgage payments, programs to address second liens, programs to facilitate short sales or deeds-in-lieu of foreclosure, and, more recently, blight elimination programs (programs for demolishing vacant or abandoned homes that are contributing to blight).⁷³

(dollars in millions)

Law

Date Enacted

Amount

Consolidated Appropriations Act, 2008 (P.L. 110-161)

December 26, 2007

$180

July 30, 2008

$180

Omnibus Appropriations Act, 2009 (P.L. 111-8)

March 11, 2009

$50

December 16, 2009

$65

April 15, 2011

$65

November 18, 2011

$80

Consolidated and Further Continuing Appropriations Act, 2013 (P.L. 113-6)

March 26, 2013

$76

Consolidated Appropriations Act, 2014 (P.L. 113-76)

January 17, 2014

$67.5

Consolidated and Further Continuing Appropriations Act, 2015 (P.L. 113-235)

December 16, 2014

$50

In each of the past several Congresses, bills have been introduced to amend bankruptcy law to allow for the modification of mortgages on primary residences. However, none of these bills have been enacted into law.⁸⁵

The existence of HAMP and other foreclosure prevention programs may have also helped to standardize mortgage modifications to some extent, possibly providing a clearer set of guidelines to servicers about what constitutes an appropriate mortgage modification. The net present value test in programs such as HAMP is intended to help ensure that the modifications servicers make are in the best interest of the investors in the mortgage.

Another issue facing loan modification programs is the high volume of delinquencies and foreclosure proceedings that have been underway since 2007. Lenders and servicers have a limited number of employees to reach out to troubled borrowers and find solutions, and this was particularly true in the early years of the foreclosure response before servicers increased staffing levels to address the volume of delinquent mortgages. Contacting borrowers—some of whom may avoid contact with their servicer out of embarrassment or fear—and working out large numbers of individual loan modifications can overwhelm the capacity of the lenders and servicers who are trying to help homeowners avoid foreclosure. In addition, the complexity of mortgage modification programs and changes in program requirements can stress servicing staff. Streamlined plans that use a formula to modify all loans that meet certain criteria may make it easier for lenders and servicers to help a greater number of borrowers in a shorter amount of time. However, streamlined plans may be more likely to run into the contractual issues between servicers and investors described above.

Mortgage servicers are the entities that are often primarily responsible for making the decision to modify a mortgage or to begin the foreclosure process. Concerns have been raised that mortgage servicers' compensation structures may provide incentives for them to pursue foreclosure rather than modify loans in certain cases, even if a modification would be in the best interest of the investor as well as the borrower.⁸⁹

In addition to the foreclosure prevention initiatives described earlier in this report, several other foreclosure prevention initiatives were created or announced in recent years but are no longer active. Many of these programs were precursors to the programs that are in place today.

This Appendix briefly describes some of these initiatives, beginning with those that most recently ended. The programs discussed in this Appendix include the Emergency Homeowners Loan Program, Hope for Homeowners, FHASecure, Fannie Mae's and Freddie Mac's Streamlined Modification Program, and the FDIC's program for modifying loans that had been held by IndyMac Bank. All of these initiatives expired several years ago, although some borrowers may be continuing to receive assistance through these programs if they began participating in the program prior to the program's end date.

Emergency Homeowners Loan Program

The Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203), which was signed into law by President Obama in July 2010, included up to $1 billion for HUD to use to administer a program to provide short-term loans to certain troubled borrowers who had experienced a decrease in income due to unemployment, underemployment, or a medical emergency, in order to help them make their mortgage payments. HUD chose to provide this funding to the 32 states (and Puerto Rico) that did not receive funding through the Administration's Hardest Hit Fund (described in the "Hardest Hit Fund" section of this report).⁹⁴ By statute, HUD was not able to enter into new agreements under this program, called the Emergency Homeowners Loan Program (EHLP), after September 30, 2011.⁹⁵

EHLP funds were used to provide five-year, zero-interest, non-recourse loans secured by junior liens on the property to help pay arrearages on the mortgage and to assist the borrower in making mortgage payments for up to 24 months going forward.⁹⁶ An individual borrower was eligible to receive up to a maximum loan of $50,000.

To qualify for the EHLP, borrowers had to meet certain conditions, including the following:

• Borrowers must have had a household income of 120% or less of area median income prior to the unemployment, underemployment, or medical event that made the household unable to make its mortgage payments;
• Borrowers must have had a current gross income of at least 15% less than the household's income prior to the unemployment, underemployment, or medical event;
• Borrowers must have been at least three months delinquent and have received notification of the lender's intent to foreclose;
• Borrowers must have had a reasonable likelihood of being able to resume making full monthly mortgage payments within two years, and had a total debt-to-income ratio of less than 55%; and
• Borrowers must have resided in the property as a principal residence, and the property must have been a single-family (one- to four-unit) property.

Borrowers were required to contribute 31% of their monthly gross income at the time of their application (but in no case less than $25) to monthly payments on the first mortgage, and were required to report any changes in income or employment status while they were receiving assistance. The assistance ends when one of the following events occurs: (1) the maximum assistance amount has been reached; (2) the household regains an income level of 85% or more of its income prior to the unemployment or medical event; (3) the homeowner no longer resides in or sells the property or refinances the mortgage; (4) the borrower defaults on his portion of the first mortgage payments; or (5) the borrower fails to report changes in employment status or income.

Borrowers are not required to make payments on the loans for a five-year period as long as the borrowers remain in the properties as their principal residences and stay current on their first mortgage payments. If these conditions are met, the balance of the EHLP loan declines by 20% annually until the debt is extinguished at the end of five years. However, the borrower will be responsible for repaying the loan to HUD under certain circumstances.⁹⁷

HUD has not released final data on how many borrowers participated in the program. Media reports from the time the program ended suggested that between 10,000 and 15,000 borrowers may have been assisted, with only about half of the funding allocated to the program ultimately being spent.⁹⁸ Participation may have been lower than initially anticipated in part because of delays in getting the program started and borrowers having difficulty meeting the eligibility criteria to qualify for assistance.

Hope for Homeowners

Congress created the Hope for Homeowners (H4H) program in the Housing and Economic Recovery Act of 2008 (P.L. 110-289), which was signed into law by President George W. Bush on July 30, 2008. The program, which was voluntary on the part of both borrowers and lenders, offered certain borrowers the ability to refinance into new mortgages insured by FHA if their lenders agreed to certain loan modifications. Hope for Homeowners began on October 1, 2008, and ended on September 30, 2011.⁹⁹

In order to be eligible for the program, borrowers were required to meet the following requirements:

• The borrower must have had a mortgage that was originated on or before January 1, 2008.
• The borrower's mortgage payments must have been more than 31% of gross monthly income.
• The borrower must not have owned another home.
• The borrower must not have intentionally defaulted on his or her mortgage or any other substantial debt within the last five years, and he or she must not have been convicted of fraud during the last ten years under either federal or state law.
• The borrower must not have provided false information to obtain the original mortgage.

Under Hope for Homeowners, the lender agreed to write the mortgage down to a percentage of the home's currently appraised value, and the borrower received a new loan insured by the FHA. The new mortgage was a 30-year fixed-rate mortgage with no prepayment penalties, and could not exceed $550,440. Homeowners paid upfront and annual mortgage insurance premiums to FHA, and any second lien-holders were required to release their liens. When the homeowner sells or refinances the home, he or she is required to pay an exit premium to HUD. The exit premium is a percentage of the initial equity the borrower has in the home after the H4H refinance; if the borrower sells or refinances the home during the first year after the H4H refinance, the exit premium is 100% of the initial equity. After five years, the exit premium is 50% of the initial equity.¹⁰⁰

Congress authorized certain changes to the Hope for Homeowners program in the Emergency Economic Stabilization Act of 2008 (P.L. 110-343) and the Helping Families Save Their Homes Act of 2009 (P.L. 111-22). HUD used the authority granted in both of these laws to make changes to H4H from its original form. For example, HUD lowered the mortgage insurance premiums charged to borrowers; made changes to the maximum loan-to-value ratio on the refinanced loan; offered immediate payments to certain second lien-holders to release their liens; eliminated a requirement for a borrower to share any home price appreciation with HUD when the home was sold or refinanced; and replaced a requirement for a borrower to share equity in the home with HUD with the exit premium.¹⁰¹ Furthermore, eligibility for the program was limited to borrowers with a net worth below a certain threshold.

The Congressional Budget Office originally estimated that up to 400,000 homeowners could be helped to avoid foreclosure over the life of H4H.¹⁰² In total, about 760 borrowers refinanced through the program.¹⁰³ Some have suggested that more borrowers and lenders did not use Hope for Homeowners because the program was too complex. The legislative and administrative changes described above were intended to address some of the obstacles to participating in the program.

FHASecure

FHASecure was a program announced by the Federal Housing Administration (FHA) on August 31, 2007, to allow delinquent borrowers with non-FHA adjustable-rate mortgages (ARMs) to refinance into FHA-insured fixed-rate mortgages.¹⁰⁴ The new mortgage helped borrowers by offering better loan terms that either reduced a borrower's monthly payments or helped a borrower avoid steep payment increases under his or her old loan. FHASecure expired on December 31, 2008.

To qualify for FHASecure, borrowers originally had to meet the following eligibility criteria:¹⁰⁵

• The borrower had a non-FHA ARM that had reset.
• The borrower became delinquent on his or her loan due to the reset, and had sufficient income to make monthly payments on the new FHA-insured loan.
• The borrower was current on his or her mortgage prior to the reset.
• The new loan met standard FHA underwriting criteria and was subject to other standard FHA requirements (including maximum loan-to-value ratios, mortgage limits, and up-front and annual mortgage insurance premiums).

In July 2008, FHA expanded its eligibility criteria for the program, such as allowing borrowers who were delinquent due to circumstances other than the mortgage reset to participate and relaxing the definition of being current on the mortgage.¹⁰⁶

FHASecure expired on December 31, 2008. In the months before its expiration, some housing policy advocates called for the program to be extended; however, HUD officials contended that continuing the program would be prohibitively expensive, possibly endangering FHA's single-family mortgage insurance program. HUD also pointed to the Hope for Homeowners program as filling the role that FHASecure did in helping households avoid foreclosure.¹⁰⁷ Supporters of extending FHASecure argued that the statutory requirements of Hope for Homeowners may have offered less flexibility in the face of changing circumstances than FHASecure, which could have been more easily amended by HUD.

When FHASecure expired at the end of 2008, about 4,000 loans had been refinanced through the program.¹⁰⁸ Critics of the program point to the relatively stringent criteria that borrowers had to meet to qualify for the program as a possible reason that more people did not take advantage of it.

On July 11, 2008, the Office of Thrift Supervision in the Department of the Treasury closed IndyMac Federal Savings Bank, based in Pasadena, CA, and placed it under the conservatorship of the Federal Deposit Insurance Corporation (FDIC). In August 2008, the FDIC put into place a loan modification program for holders of mortgages either owned or serviced by IndyMac that were seriously delinquent or in danger of default, or on which the borrower was having trouble making payments because of interest rate resets or a change in financial circumstances. Many of the features of the IndyMac loan modification program were later included in HAMP.

In order to be eligible for a loan modification, the mortgage must have been for the borrower's primary residence and the borrower had to provide current income information that documented financial hardship. Furthermore, the FDIC conducted a net present value test to evaluate whether the expected future benefit to the FDIC and the mortgage investors from modifying the loan would be greater than the expected future benefit from foreclosure.

If a borrower met the above conditions, the loan would be modified so that he or she had a mortgage debt-to-income (DTI) ratio of 38%. The 38% DTI could be achieved by lowering the interest rate, extending the period of the loan, forbearing a portion of the principal, or a combination of the three. The interest rate would be set at the Freddie Mac survey rate for conforming mortgages, but if necessary it could be lowered for a period of up to five years in order to reach the 38% DTI; after the five-year period, the interest rate would rise by no more than 1% each year until it reached the Freddie Mac survey rate.

Then-FDIC Chairman Sheila Bair estimated that about 13,000 loans were modified under this program while IndyMac was under the FDIC's conservatorship.¹⁰⁹ The FDIC completed a sale of IndyMac to OneWest Bank on March 19, 2009. OneWest agreed to continue to operate the loan modification program subject to the terms of a loss-sharing agreement with the FDIC.¹¹⁰ Currently, OneWest is a participating servicer in HAMP, described earlier in this report.

Fannie Mae and Freddie Mac Streamlined Modification Program

On November 11, 2008, James Lockhart, then the director of the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, announced a new Streamlined Modification Program for Fannie Mae and Freddie Mac and certain private lenders and servicers.¹¹¹ Fannie Mae and Freddie Mac had helped troubled borrowers through individualized loan modifications for some time, but the SMP represented an attempt to formalize the process and set an industry standard. The SMP took effect on December 15, 2008, but was soon replaced by the HAMP, which was announced in February 2009 and is described in the "Home Affordable Modification Program (HAMP)" section of this report.

In order for borrowers whose mortgages were owned by Fannie Mae or Freddie Mac to be eligible for the SMP, they had to meet the following criteria:¹¹²

• The mortgage must have originated on or before January 1, 2008.
• The mortgage must have had a loan-to-value ratio of at least 90%.
• The home must have been a single-family residence occupied by the borrower, and it must have been the borrower's primary residence.
• The borrower must have missed at least three mortgage payments.
• The borrower must not have filed for bankruptcy.

Mortgages insured or guaranteed by the federal government, such as those guaranteed by FHA, the Veterans' Administration, or the Rural Housing Service, were not eligible for the SMP.

The SMP shared many features of the FDIC's plan to modify troubled mortgages held by IndyMac, and many of these features were also later included in HAMP. Qualified borrowers' monthly mortgage payments were lowered so that the household's mortgage debt-to-income ratio (DTI) was 38% (not including second lien payments). After borrowers successfully completed a three-month trial period (by making all of the payments at the proposed modified payment amount), the loan modification automatically took effect.

In order to reach the 38% mortgage debt-to-income ratio, servicers were required to follow a specific formula. First, the servicer capitalized late payments and accrued interest (late fees and penalties were waived). If this resulted in a DTI of 38% or less, the modification was complete. If the DTI was higher than 38%, the servicer could extend the term of the loan to up to 40 years from the effective date of the modification. If the DTI was still above 38%, the interest rate could be adjusted to the current market rate or lower, but to no less than 3%. Finally, if the DTI was still above 38%, servicers could offer principal forbearance. The amount of the principal forbearance would not accrue interest and was nonamortizing, but would result in a balloon payment when the loan was paid off or the home was sold. Principal forgiveness was not allowed under the SMP.

To encourage participation in the SMP, Fannie Mae and Freddie Mac paid servicers $800 for each loan modification completed through the program. If the SMP did not produce an affordable payment for the borrower, servicers were to work with borrowers in a customized fashion to try to modify the loan in a way that the homeowner could afford.

Fannie Mae and Freddie Mac completed over 51,000 loan modifications between January 2009 and April 2009, when Fannie and Freddie stopped using the SMP and began participating in the Making Home Affordable program instead.¹¹³ However, it is unclear how many of these loan modifications were done specifically through the SMP.

Footnotes

For a more detailed discussion of the foreclosure process and the factors that contribute to a lender's decision to pursue foreclosure, see CRS Report RL34232, The Process, Data, and Costs of Mortgage Foreclosure, coordinated by [author name scrubbed].

U.S. Department of Housing and Urban Development, Office of Policy Development and Research, An Analysis of Mortgage Refinancing, 2001-2003, November 2004, pages 1 and 4, http://www.huduser.org/Publications/pdf/MortgageRefinance03.pdf.

For example, see Chris Mayer and Karen Pence, Subprime Mortgages: What, Where, and To Whom?, Finance and Economics Discussion Series, Division of Research & Statistics and Monetary Affairs, Federal Reserve Board, Washington, DC, 2007, http://www.federalreserve.gov/pubs/feds/2008/200829/200829pap.pdf. The share of subprime mortgage originations depends, in part, on the definition of subprime lending and the data source used.

For example, see Donald R. Haurin, Toby L. Parcel, and R. Jean Haurin, The Impact of Homeownership on Child Outcomes, Joint Center for Housing Studies, Harvard University, Low-Income Homeownership Working Paper Series, October 2001, http://www.jchs.harvard.edu/publications/homeownership/liho01-14.pdf, and Denise DiPasquale and Edward L. Glaeser, Incentives and Social Capital: Are Homeowners Better Citizens?, National Bureau of Economic Research, NBER Working Paper 6363, Cambridge, MA, January 1998, http://www.nber.org/papers/w6363.pdf?new_window=1.

In 2009, Congress passed the Protecting Tenants at Foreclosure Act (PTFA), a temporary measure to provide certain federal protections for renters living in foreclosed properties. The law required that most tenants be given at least 90 days' notice before being evicted, and in some cases allowed tenants to remain for the terms of their lease. The PTFA expired on December 31, 2014.

For example, see the Institute for Children, Poverty, and Homelessness, "Foreclosures and Homelessness: Understanding the Connection," January 2013, http://www.icphusa.org/filelibrary/ICPH_policybrief_ForeclosuresandHomelessness.pdf.

For a review of the literature on the impact of foreclosures on nearby house prices, see Kai-yan Lee, Foreclosure's Price-Depressing Spillover Effects on Local Properties: A Literature Review, Federal Reserve Bank of Boston, Community Affairs Discussion Paper, No. 2008-01, September 2008, http://www.bos.frb.org/commdev/pcadp/2008/pcadp0801.pdf.

According to CoreLogic, a real estate analytics firm, negative equity peaked in the fourth quarter of 2011, when over 12 million properties, or a quarter of households with mortgages, had negative equity in their homes. As of the fourth quarter of 2014, rising home prices had helped many households regain positive equity, but nearly 11% of households with mortgages, or nearly 5.5 million households, remained in negative equity positions. See CoreLogic, Equity Report Fourth Quarter 2014, p. 3, http://www.corelogic.com/research/negative-equity/corelogic-q4-2014-equity-report.pdf.

For example, see Government Accountability Office, Alternative Mortgage Products: Impact on Defaults Remains Unclear, but Disclosure of Risks to Borrowers Could Be Improved, testimony, September 20, 2006, http://gao.gov/assets/120/114847.pdf.

For a fuller discussion of these types of mortgage products and their effects, see CRS Report RL33775, Alternative Mortgages: Causes and Policy Implications of Troubled Mortgage Resets in the Subprime and Alt-A Markets, by [author name scrubbed].

Even if the interest rate remains the same or decreases, it is possible for monthly payments to increase if prior payments were subject to an interest rate cap or a payment cap. This is because unpaid interest that would have accrued if not for the cap can be added to the principal loan amount, resulting in negative amortization. For more information on the many variations of adjustable rate mortgages, see The Federal Reserve Board, Consumer Handbook on Adjustable Rate Mortgages, http://www.federalreserve.gov/pubs/arms/arms_english.htm#drop.

In a short sale, a household sells its home for less than the amount it owes on its mortgage. Often, the mortgage holder will accept the proceeds from the sale as payment in full on the mortgage even though it is taking a loss. A deed-in-lieu of foreclosure refers to the practice of a borrower turning the deed to the house over to the lender, which accepts the deed as payment of the mortgage debt. However, in some cases, the borrower may still be liable for the remaining outstanding mortgage debt when a short sale or a deed-in-lieu is utilized.

Historically, one impediment to principal forgiveness has been that borrowers were required to claim the forgiven amount as income, and therefore had to pay taxes on that income. In December 2007, Congress passed legislation that temporarily excluded mortgage debt forgiven prior to January 1, 2010, from taxable income; the exclusion has since been extended to mortgage debt forgiven prior to January 1, 2015. For more information about the tax treatment of principal forgiveness, see CRS Report RL34212, Analysis of the Tax Exclusion for Canceled Mortgage Debt Income, by [author name scrubbed] and [author name scrubbed].

For example, in 2008, Representative Spencer Bachus, then-chairman of the House Committee on Financial Services, said that "[i]t is in everyone's best interest as a general rule to prevent foreclosures. Foreclosures have a negative impact not only on families but also on their neighbors, their property value, and on the community and local government." (See "Remarks of Ranking Member Spencer Bachus during Full Committee Hearing on Loan Modifications," press release, November 12, 2008, http://bachus.house.gov/index.php?option=com_content&task=view&id=160&Itemid=104.) Similarly, former Senator Chris Dodd, during his tenure as chairman of the Senate Committee on Banking, Housing, and Urban Affairs, described an "overwhelming tide of foreclosures ravaging our neighborhoods and forcing thousands of American families from their homes." (See "Dodd Statement on Government Loan Modification Program," statement, November 11, 2008, http://dodd.senate.gov/?q=node/4620.)

For a full list of current members of the HOPE NOW Alliance, see the HOPE NOW website at https://www.hopenow.com/members.php.

This section describes broad federal programs intended to assist troubled borrowers and reduce foreclosures. There have also been additional efforts to prevent unnecessary foreclosures, including amendments to the Servicemembers Civil Relief Act to extend temporary foreclosure protections for servicemembers; legal settlements between the federal government and banks that, in part, directed funding towards homeowners affected by foreclosures; administrative changes by federal housing agencies (like the Federal Housing Administration) and the government-sponsored enterprises Fannie Mae and Freddie Mac to address their loss mitigation policies; and rules promulgated by the Consumer Financial Protection Bureau (CFPB) to establish national standards for mortgage servicers, including standards related to how they service troubled mortgages. These efforts are not included in this report.

The program details originally referred to the program as the Homeowner Affordability and Stability Plan, or HASP. Further program details released on March 4, 2009, began referring to the plan as Making Home Affordable. More information on Making Home Affordable can be found http://www.treasury.gov/initiatives/financial-stability/TARP-Programs/housing/Pages/default.aspx.

Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that were chartered by Congress to provide liquidity to the mortgage market. Rather than make loans directly, the GSEs buy loans made in the private market and either hold them in their own portfolios or securitize and sell them to investors. The GSEs were placed in voluntary conservatorship by their regulator, the Federal Housing Finance Agency (FHFA) on September 7, 2008. For more information on the GSEs in general, see CRS Report RL33756, Fannie Mae and Freddie Mac: A Legal and Policy Overview, by [author name scrubbed] and [author name scrubbed], and for more information on the conservatorship, see CRS Report R42760, Fannie Mae's and Freddie Mac's Financial Status: Frequently Asked Questions, by [author name scrubbed].

Borrowers can look up whether their loan is owned by Fannie Mae or Freddie Mac at http://makinghomeaffordable.gov/loan_lookup.html.

Originally, the original mortgage must have been delivered to Fannie Mae and Freddie Mac on or prior to May 31, 2009. Because there is often a lag between when a mortgage closes and when it is sold and delivered to Fannie Mae or Freddie Mac, this meant that some mortgages that had closed on or prior to May 31, 2009, may not have been eligible if they had not also been delivered to Fannie or Freddie prior to that date. In October 2013, Fannie Mae and Freddie Mac each announced that HARP would now be open to mortgages that closed on or prior to May 31, 2009, regardless of the date that the mortgage was delivered. See Fannie Mae Selling Guide Announcement SEL-2013-08, dated October 22, 2013, at https://www.fanniemae.com/content/announcement/sel1308.pdf; and Freddie Mac, "Revised Eligibility Date for Relief Refinance Mortgages," October 22, 2013, at http://www.freddiemac.com/singlefamily/news/2013/1022_revised_eligibility_date.html.

Federal Housing Finance Agency, "FHFA, Fannie Mae and Freddie Mac Announce HARP Changes to Reach More Borrowers," press release, October 24, 2011, http://fhfa.gov/webfiles/22721/HARP_release_102411_Final.pdf. Many of these changes became effective in December 2011 or January 2012; however, specific changes went into effect on different dates.

Fannie Mae and Freddie Mac each released their own guidance governing how the HARP changes were implemented for loans that they own or guarantee. Fannie Mae's detailed guidance on the program changes is at https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2011/sel1112.pdf, while Freddie Mac's is at http://www.freddiemac.com/sell/guide/bulletins/pdf/bll1122.pdf.

Federal Housing Finance Agency, Refinance Report February 2015, http://www.fhfa.gov/AboutUs/Reports/ReportDocuments/Feb-15-Refinance-Report.pdf.

HARP was originally scheduled to expire on June 10, 2010. The Federal Housing Finance Agency has extended the program five times. In March 2010, FHFA announced that it was extending the program until June 30, 2011. In March 2011, FHFA announced that it was extending the program until June 30, 2012. In October 2011, FHFA announced that it would extend the program until December 31, 2013. In April 2013, it announced that it would extend the program until December 31, 2015, and in May 2015, it announced that it would extend the program until December 31, 2016. See the following Federal Housing Finance Agency press releases: "FHFA Extends Refinance Program by One Year," March 1, 2010, http://fhfa.gov/webfiles/15466/HARPEXTENDED3110%5b1%5d.pdf; "FHFA Extends Refinance Program by One Year," March 11, 2011, http://fhfa.gov/webfiles/20399/HarpExtended0311R.pdf; "FHFA, Fannie Mae and Freddie Mac Announce HARP Changes to Reach More Borrowers," October 24, 2011, http://fhfa.gov/webfiles/22721/HARP_release_102411_Final.pdf, "FHFA Extends HARP to 2015," April 11, 2013, http://www.fhfa.gov/webfiles/25112/HARPextensionPRFINAL41113.pdf, and "Prepared Remarks of Melvin L. Watt Director FHFA at Greenlining Institute 22^nd Annual Economic Summit," May 8, 2015, http://www.fhfa.gov/Media/PublicAffairs/Pages/Prepared-Remarks-FHFA-Director-at-Greenlining-Institute-22nd-Annual-Economic-Summit.aspx.

Treasury's requirements governing HAMP for mortgages that are not backed by Fannie Mae or Freddie Mac are available in a handbook that is updated periodically to incorporate new guidance or changes to the program. That handbook is available at https://www.hmpadmin.com/portal/index.jsp. HAMP guidance related to mortgages owned or guaranteed by Fannie Mae or Freddie Mac can be found on those entities' respective websites. In general, the HAMP guidance for GSE mortgages is broadly similar to the guidance for non-GSE mortgages, but there are some differences.

Servicers of mortgages backed by Fannie Mae or Freddie Mac are required to participate in HAMP for those mortgages. Companies that received funding through Troubled Assets Relief Program (TARP) or Financial Stability Plan (FSP) programs announced after the announcement of Making Home Affordable are also required to participate in HAMP. A list of participating servicers is available at http://www.makinghomeaffordable.gov/get-started/contact-mortgage/Pages/default.aspx.

Incentive payments and how they are calculated are described in Treasury's Making Home Affordable Handbook, Chapter II, Section 13.

Archived Supplemental Directives, which have since been incorporated into the Making Home Affordable Handbook, are available at https://www.hmpadmin.com/portal/programs/guidance.jsp. More recent Supplemental Directives that have not yet been incorporated into the Handbook are at https://www.hmpadmin.com/portal/programs/guidance.jsp.

See Freddie Mac's historical monthly data for 30-year fixed rate mortgages at http://www.freddiemac.com/pmms/pmms_archives.html.

The most recent version of the Making Home Affordable Handbook and any associated policy directives (called "Supplemental Directives") can be found at https://www.hmpadmin.com/portal/programs/hamp.jsp#1. The handbook contains the requirements for mortgages that are not backed by Fannie Mae or Freddie Mac. Guidance for mortgages backed by Fannie Mae and Freddie Mac can be found on their respective websites.

TARP was authorized by the Emergency Economic Stabilization Act of 2008 (P.L. 110-343). For more information on TARP, see CRS Report R41427, Troubled Asset Relief Program (TARP): Implementation and Status, by [author name scrubbed].

Department of the Treasury, Section 105(a) Troubled Assets Relief Program Report to Congress for the Period February 1, 2009 to February 28, 2009, p. 1, available at http://www.financialstability.gov/docs/105CongressionalReports/105aReport_03062009.pdf.

Originally, Treasury committed just over $8 billion to the FHA Short Refinance Program. In response to lower-than-anticipated program participation, and therefore fewer defaults, Treasury has reduced the maximum amount it will spend on this program to just over $1 billion. See Treasury's Troubled Asset Relief Program Monthly Report to Congress – March 2013, p. 21, http://www.treasury.gov/initiatives/financial-stability/reports/Documents/March%202013%20Monthly%20Report%20to%20Congress.pdf. In March 2015, Treasury further reduced the amount committed to the FHA Short Refinance Program from $1 billion to $130 million. See Treasury's Troubled Asset Relief Program Monthly Report to Congress – March 2015, page 5, http://www.treasury.gov/initiatives/financial-stability/reports/Documents/Monthy_Report_Congress_March2015.pdf.

U.S. Department of the Treasury, Monthly TARP Update for 05/01/2015, http://www.treasury.gov/initiatives/financial-stability/reports/Documents/Monthly_TARP_Update%20-%2005.01.2015.pdf.

Previously, Treasury published monthly HAMP performance reports. Beginning with the second quarter of 2014, the reports are published on a quarterly basis rather than a monthly basis. The last monthly report was published in May 2014.

Treasury's HAMP performance reports can be found at http://www.treasury.gov/initiatives/financial-stability/reports/Pages/Making-Home-Affordable-Program-Performance-Report.aspx.

U.S. Department of the Treasury, Making Home Affordable Program Servicer Performance Report Through the Fourth Quarter of 2014, p. 5, http://www.treasury.gov/initiatives/financial-stability/reports/Documents/4Q14%20Quarterly%20MHA%20Report%20Final3.pdf

U.S. Department of the Treasury, Making Home Affordable Program Performance Report Through the Fourth Quarter of 2014, p. 6.

U.S. Department of the Treasury and U.S. Department of Housing and Urban Development, "Obama Administration Kicks Off Mortgage Modification Conversion Drive," press release, November 30, 2009, available at http://treas.gov/press/releases/tg421.htm.

See Treasury's Supplemental Directive 10-01, "Home Affordable Modification Program – Program Update and Resolution of Active Trial Modifications," January 28, 2010, https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/sd1001.pdf.

U.S. Department of the Treasury, Making Home Affordable Program Performance Report Through the Fourth Quarter of 2014, p. 5.

A fourth servicer, Ocwen, was found to need substantial improvement as well, but Treasury did not withhold incentive payments from Ocwen at that time due to a finding that its performance was partially due to a loan portfolio that it had bought from another company.

U.S. Department of the Treasury, Making Home Affordable Program Performance Report through April 2011, June 9, 2011. Servicer assessment results begin on page 14. All monthly reports can be found at http://www.treasury.gov/initiatives/financial-stability/results/MHA-Reports/Pages/default.aspx.

U.S. Department of the Treasury, Making Home Affordable Program Performance Report through July 2011, September 1, 2011. Servicer assessment results begin on page 16.

U.S. Department of the Treasury, Making Home Affordable Program Performance Report through October 2011, December 7, 2011. Servicer assessment results begin on page 16.

U.S. Department of the Treasury, Making Home Affordable Program Performance Report through January 2012, Servicer assessment results begin on page 18.

U.S. Department of the Treasury, Making Home Affordable Program Performance Report through the Fourth Quarter of 2014, p. 18.

The program was originally scheduled to end on December 31, 2012. However, in January 2012 the Administration announced that it would extend the deadline to December 31, 2013; in May 2013 the Administration announced that it would extend the program until December 31, 2015; and in June 2014 the Administration announced that it would extend the program until at least December 31, 2016. See press releases from Treasury and HUD announcing the extensions at http://www.treasury.gov/connect/blog/Pages/Expanding-our-efforts-to-help-more-homeowners-and-strengthen-hard-hit-communities.aspx, http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2013/HUDNo.13-083, and http://www.treasury.gov/press-center/press-releases/Pages/jl2444.aspx.

During the 112^th Congress, the House passed H.R. 839, which, if enacted, would have terminated the program and rescinded unobligated funds. Borrowers who were currently participating in the program would not have been affected if this bill had become law. CBO estimated that H.R. 839 would have reduced direct federal spending by $1.4 billion over a 10-year period. (See Congressional Budget Office, H.R. 839 HAMP Termination Act of 2011, cost estimate, March 11, 2011, http://cbo.gov/ftpdocs/120xx/doc12097/hr839.pdf.) The bill was not considered by the Senate.

All of these subprograms are described in detail in Treasury's Making Home Affordable Handbook.

Treasury's guidelines on 2MP are available at https://www.hmpadmin.com/portal/programs/second_lien.html.

U.S. Department of the Treasury, Making Home Affordable Program Servicer Performance Report through the Fourth Quarter of 2014, p. 13.

Treasury's guidelines on HAFA are available at https://www.hmpadmin.com/portal/programs/foreclosure_alternatives.html.

Short sales and deeds-in-lieu are described in footnote 12. Under HAFA, the lender must agree to accept the proceeds of the short sale or the deed and property as full payment of the mortgage debt, and may not pursue borrowers for any remaining amounts owed on the mortgage. Short sales and deeds-in-lieu have a negative impact on a borrower's credit, but they may result in fewer negative consequences overall for the borrower than a foreclosure.

Supplemental Directive 12-07, "Home Affordable Foreclosure Alternatives Program – Policy Update," November 1, 2012, p. 8, https://www.hmpadmin.com/portal/programs/docs/hafa/sd1207.pdf.

U.S. Department of the Treasury, Making Home Affordable Program Servicer Performance Report Through the Fourth Quarter of 2014, p. 14.

Originally, the forbearance period was 3 months. Treasury extended it to 12 months in Supplemental Directive 11-07, Making Home Affordable Program – Expansion of Unemployment Forbearance, July 25, 2011, available at https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/sd1107.pdf. The change became effective on October 1, 2011.

The original detailed guidelines on the Home Affordable Unemployment Program were released in Supplemental Directive 10-04 on May 11, 2010. These guidelines are available at https://www.hmpadmin.com/portal/docs/hamp_servicer/sd1004.pdf. Updated guidance can be found in Treasury's Making Home Affordable Handbook, available at https://www.hmpadmin.com/portal/index.jsp.

U.S. Department of the Treasury, Making Home Affordable Program Servicer Performance Report Through the Fourth Quarter of 2014, p. 15.

Detailed guidelines on the Principal Reduction Alternative were released in Supplemental Directive 10-05 on June 3, 2010. These guidelines are available at https://www.hmpadmin.com/portal/docs/hamp_servicer/sd1005.pdf.

U.S. Department of the Treasury, Making Home Affordable Program Servicer Performance Report Through the Fourth Quarter of 2014, p. 12.

Supplemental Directive 12-02, Making Home Affordable Program – MHA Extension and Expansion, March 9, 2012, https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/sd1202.pdf.

Although mortgages backed by Fannie Mae or Freddie Mac are not eligible for HAMP Tier 2, they may be eligible for a similar modification called the GSE Standard Modification, developed by Fannie Mae and Freddie Mac as part of their Servicing Alignment Initiative started in October 2011. Information on Freddie Mac's Standard Modification is at http://www.freddiemac.com/singlefamily/service/standard_modification.html, and information on Fannie Mae's Standard Modification is at https://www.fanniemae.com/content/guide/servicing/d2/3.2/05.html.

U.S. Department of the Treasury, Making Home Affordable Program Servicer Performance Report Through the Fourth Quarter 2014, pages 4-5.

Guidelines for HFAs' proposals for the first round of funding are available at http://www.makinghomeaffordable.gov/docs/HFA%20FAQ%20—%20030510%20FINAL%20(Clean).pdf.

See U.S. Department of the Treasury, "Help for the Hardest Hit Housing Markets," press release, February 19, 2010, available at http://makinghomeaffordable.gov/pr_02192010.html. See also "Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets ("HFA Hardest Hit Fund"): Frequently Asked Questions," available at http://www.makinghomeaffordable.gov/docs/HFA%20FAQ%20—%20030510%20FINAL%20(Clean).pdf, for more information on the program and for maximum funding allocations for each state in the first round.

See U.S. Department of the Treasury, "Administration Announces Second Round of Assistance for Hardest-Hit Housing Markets," press release, March 29, 2010, available at http://www.financialstability.gov/latest/pr_03292010.html. This press release also includes the maximum funding allocation for each state in the second round.

See U.S. Department of the Treasury, "Obama Administration Announces Additional Support for Targeted Foreclosure-Prevention Programs To Help Homeowners Struggling With Unemployment," press release, August 11, 2010, available at http://financialstability.gov/latest/pr_08112010.html.

Except for Arizona, every state that received funding in one of the first two rounds of the Hardest Hit Fund also received funding in the third round.

For information on the amount of HHF funding that each state has actually disbursed, rather than the amount it has drawn from Treasury, see Treasury's quarterly Hardest Hit Fund performance summaries at http://www.treasury.gov/initiatives/financial-stability/reports/Pages/HHF.aspx.

Brief descriptions of each participating state's HHF programs are included in Treasury's quarterly Hardest Hit Fund Performance Summaries, available at http://www.treasury.gov/initiatives/financial-stability/reports/Pages/HHF.aspx. More detailed information on state programs is included in each state's HFA's Hardest Hit Fund agreements with Treasury and their related amendments, available at http://www.treasury.gov/initiatives/financial-stability/TARP-Programs/housing/Pages/Program-Documents.aspx.

U.S. Department of the Treasury, Hardest Hit Fund Fourth Quarter 2014 Performance Summary, page 3. Quarterly performance summaries for the Hardest Hit Fund are available on Treasury's website at http://www.treasury.gov/initiatives/financial-stability/reports/Pages/HHF.aspx.

Treasury's quarterly performance summaries on the Hardest Hit Fund and Treasury's monthly reports to Congress on the Troubled Asset Relief Program generally include information on changes that states have made to their HHF programs. The monthly reports to Congress on the Troubled Asset Relief Program are available on Treasury's website at http://www.treasury.gov/initiatives/financial-stability/reports/Pages/Monthly-Report-to-Congress.aspx.

The program was extended to December 31, 2016 by FHA Mortgagee Letter 2014-23, "FHA Refinance of Borrowers in Negative Equity Positions: Program Extension," http://portal.hud.gov/hudportal/documents/huddoc?id=14-23ml.pdf.

During the 112^th Congress, the House of Representatives passed a bill (H.R. 830) which, if enacted, would have terminated the FHA Short Refinance Program and rescinded unexpended funds. Borrowers whose loans had already been refinanced through the program would have been affected if this bill became law. CBO estimated that enacting H.R. 830 would have decreased the federal deficit by $175 million (see Congressional Budget Office, H.R. 830 FHA Refinance Program Termination Act of 2011, cost estimate, March 7, 2011, http://cbo.gov/ftpdocs/120xx/doc12089/hr830.pdf). The Senate did not consider the bill.

Data obtained from CRS communications with HUD.

See U.S. Department of the Treasury, Troubled Asset Relief Program (TARP) Monthly Report to Congress – April 2013, pp. 3-4, http://www.treasury.gov/initiatives/financial-stability/reports/Documents/April%202013%20Monthly%20Report%20to%20Congress.pdf and Troubled Asset Relief Program (TARP) Monthly Report to Congress – March 2015, p. 5, http://www.treasury.gov/initiatives/financial-stability/reports/Documents/Monthy_Report_Congress_March2015.pdf.

For more information on housing counseling, see archived CRS Report R41351, Housing Counseling: Background and Federal Role, by [author name scrubbed].

Each year, Congress appropriates funding to HUD to distribute to certified housing counseling organizations to undertake various types of housing counseling, including pre-purchase counseling and post-purchase counseling. Congress also appropriates funding to NeighborWorks each year for neighborhood reinvestment activities, including housing counseling. The recent funding provided to NeighborWorks specifically for foreclosure mitigation counseling is separate from both of these other usual appropriations.

For more information on the National Foreclosure Mitigation Counseling Program, see the NeighborWorks website at http://www.nw.org/network/nfmcp/default.asp#info.

HUD-approved housing counseling intermediaries, state housing finance agencies, and NeighborWorks organizations are eligible to receive funds through the NFMCP.

For a discussion of bills of this type that were considered in the 111^th Congress, see archived CRS Report RL34301, The Primary Residence Exception: Legislative Proposals in the 111^th Congress to Amend the Bankruptcy Code to Allow the Strip Down of Certain Home Mortgages, by [author name scrubbed]. Bills that included mortgage cramdown provisions have also been introduced in the 112^th, 113^th, and 114^th Congresses.

Office of the Comptroller of the Currency, Mortgage Metrics Report Fourth Quarter 2014, p. 21, http://occ.gov/publications/publications-by-type/other-publications-reports/mortgage-metrics/mortgage-metrics-q4-2014.pdf.

CoreLogic, CoreLogic Equity Report Fourth Quarter 2014, p. 3, http://www.corelogic.com/research/negative-equity/corelogic-q4-2014-equity-report.pdf.

For a more detailed discussion of the arguments for and against more widespread use of principal reduction, as well as legislative proposals related to principal reduction from the 112^th Congress, see CRS Report R42480, Reduce, Refinance, and Rent? The Economic Incentives, Risks, and Ramifications of Housing Market Policy Options, by [author name scrubbed].

For example, see Diane E. Thompson, Foreclosing Modifications: How Servicer Incentives Discourage Loan Modifications, Washington Law Review, Vol. 86, pages 755-840, https://digital.law.washington.edu/dspace-law/bitstream/handle/1773.1/1074/86WLR755.pdf?sequence=1.

For discussions of the economics of mortgage servicing, see Section 3 of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) Quarterly Report to Congress, October 26, 2010, available at http://www.sigtarp.gov/Quarterly%20Reports/October2010_Quarterly_Report_to_Congress.pdf, and Larry Cordell et. al., "The Incentives of Mortgage Servicers: Myths and Realities," Finance and Economics Discussion Series, Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board, Washington, DC, http://www.federalreserve.gov/pubs/feds/2008/200846/200846pap.pdf.

Federal Housing Finance Agency, "FHFA Announces Joint Initiative to Consider Alternatives for a New Mortgage Servicing Compensation Structure," press release, January 18, 2011, available at http://fhfa.gov/webfiles/19639/Servicing_model11811.pdf.

Office of the Comptroller of the Currency and Office of Thrift Supervision, OCC and OTS Mortgage Metrics Report: Disclosure of National Bank and Federal Thrift Mortgage Loan Data, Fourth Quarter 2014, pp. 30-31, http://occ.gov/publications/publications-by-type/other-publications-reports/mortgage-metrics/mortgage-metrics-q4-2014.pdf.

OCC Mortgage Metrics Report, p. 36-38.

U.S. Department of Housing and Urban Development, Obama Administration Announces $1 Billion in Additional Help for Struggling Homeowners in 32 States and Puerto Rico, press release, October 5, 2010, available at http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2010/HUDNo.10-225.

In the 112^th Congress, the House passed H.R. 836, which would have terminated the EHLP and rescinded any unobligated program balances. Any borrowers who had already received loans through the program would not have been affected if the bill had become law. CBO estimated that enacting H.R. 836 would have decreased the federal budget deficit by $840 million. (See Congressional Budget Office, H.R. 836 Emergency Mortgage Relief Program Termination Act of 2011, cost estimate, March 7, 2011, http://cbo.gov/ftpdocs/120xx/doc12090/hr836.pdf.)

Information on program requirements can be found in HUD's "Emergency Homeowner Loan Program – Summary," available at http://www.hud.gov/offices/hsg/sfh/hcc/msgs/EHLP100810.pdf.

Participating borrowers must repay the EHLP assistance if (1) the borrower retains ownership of the home but no longer resides in it as a principal residence; (2) the borrower defaults on his or her first mortgage payments; or (3) the borrower receives net proceeds from selling the home or refinancing the mortgage. In the third case, if the proceeds of the sale or refinance are not sufficient to repay the entire remaining balance of the loan, the remaining balance will be considered to have been paid in full and the lien on the property will be released.

For example, see Joseph De Avila, "Mortgage Aid Effort Falls Short of Its Goal," Wall Street Journal, September 29, 2011, http://online.wsj.com/article/SB10001424052970203405504576599110626013214.html and Cara Buckley, "U.S. Mortgage-Aid Program Is Shutting Down, With Up to $500 Million Unspent," New York Times, September 28, 2011, http://www.nytimes.com/2011/09/29/nyregion/emergency-homeowners-aid-ending-with-up-to-500-million-unspent.html.

FHA issued guidance stating that loans had to receive case numbers by July 29, 2011 in order to be eligible for Hope for Homeowners before the program ended See FHA Mortgagee Letter 11-20, "Termination of the Hope for Homeowners (H4H) Program," June 10, 2011, http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/11-20ml.pdf.

See FHA Mortgagee Letter 09-43, available at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/2009ml.cfm. Initially, borrowers had to share a portion of both their equity and any appreciation in the home's value with HUD when the home was sold or refinanced. P.L. 111-22 provided the authority to change this requirement.

For the most recent comprehensive guidance on Hope for Homeowners, including these changes, see FHA Mortgagee Letter 09-43, available at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/2009ml.cfm.

Congressional Budget Office, Cost Estimate, Federal Housing Finance Regulatory Reform Act of 2008, June 9, 2008, p. 8, http://www.cbo.gov/ftpdocs/93xx/doc9366/Senate_Housing.pdf.

See Federal Housing Administration, FHA Outlook, September 2010 and FHA Outlook, September 2011, both available at http://www.hud.gov/offices/hsg/rmra/oe/rpts/ooe/olmenu.cfm.

FHA already offered refinancing options for homeowners who were current on their existing fixed- or adjustable-rate mortgages and continued to do so after the adoption of FHASecure.

See FHA Mortgagee Letter 2007-11, "The FHASecure Initiative and Guidance on Appraisal Practices in Declining Markets," available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/letters/mortgagee/2007ml.

For a description of the changes, see FHA Mortgagee Letter 08-13, "Expansion of FHA Secure," available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/letters/mortgagee/2008ml.

HUD Mortgagee Letter 08-41, "Termination of FHASecure," December 19, 2008, available at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/2008ml.cfm.

Congressional Budget Office, "The Budget and Economic Outlook: Fiscal Years 2009 to 2019," January 2009, available at http://www.cbo.gov/ftpdocs/99xx/doc9957/01-07-Outlook.pdf.

Remarks by FDIC Chairman Sheila Bair to the National Association of Realtors Midyear Legislative Meeting and Trade Expo, Washington, DC, May 12, 2009. A transcript of these remarks is available at http://www.fdic.gov/news/news/speeches/archives/2009/spmay1209.html.

Federal Deposit Insurance Corporation, "FDIC Closes Sale of IndyMac Federal Bank, Pasadena, California," press release, March 19, 2009, http://www.fdic.gov/news/news/press/2009/pr09042.html.

See Federal Housing Finance Agency, "FHFA Announces Implementation Plans for Streamlined Modification Program," press release, December 18, 2008, http://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Implementation-Plans-for-Streamlined-Loan-Modification-Program.aspx. The private mortgage lenders and servicers who participated in the Streamlined Modification Program were primarily members of the HOPE NOW Alliance, a voluntary alliance of industry members that formed to help homeowners avoid foreclosure.

For program requirements, see Fannie Mae's December 12, 2008 Announcement 08-33 at https://www.fanniemae.com/content/announcement/0833.pdf and Freddie Mac's December 12, 2008 Bulletin at http://www.freddiemac.com/singlefamily/guide/bulletins/pdf/bll121208.pdf.

Federal Housing Finance Agency, Foreclosure Prevention Report: April 2009, July 15, 2009, available at http://www.fhfa.gov/webfiles/14588/April_Foreclosure_Prevention71509F.pdf.