Preserving Homeownership:
Foreclosure Prevention Initiatives
Katie Jones
Analyst in Housing Policy
November 20, 2013
Congressional Research Service
7-5700
www.crs.gov
R40210

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Preserving Homeownership: Foreclosure Prevention Initiatives

Summary
The foreclosure rate in the United States began to rise rapidly beginning around the middle of
2006 and has remained elevated ever since. Losing a home to foreclosure can hurt homeowners in
many ways; for example, homeowners who have been through a foreclosure may have difficulty
finding a new place to live or obtaining a loan in the future. Furthermore, concentrated
foreclosures can drag down nearby home prices, and large numbers of abandoned properties can
negatively affect communities. Finally, elevated levels of foreclosures can destabilize the housing
market, which can in turn negatively impact the economy as a whole.
There is a broad consensus that there are many negative consequences associated with rising
foreclosure rates. Since the foreclosure rate began to rise, Congress and both the Bush and Obama
Administrations have initiated efforts aimed at preventing further increases in foreclosures and
helping more families preserve homeownership. These efforts currently include the Making
Home Affordable program, which includes both the Home Affordable Refinance Program
(HARP) and the Home Affordable Modification Program (HAMP); the Hardest Hit Fund; the
Federal Housing Administration (FHA) Short Refinance Program; and the National Foreclosure
Mitigation Counseling Program (NFMCP), which provides funding for counseling for
homeowners facing foreclosure and is administered by NeighborWorks America. Two other
initiatives, Hope for Homeowners and the Emergency Homeowners Loan Program (EHLP),
expired at the end of FY2011.
While there is a broad consensus that there are many negative consequences related to
foreclosures, there is less consensus over whether the federal government should have a role in
preventing foreclosures and, if so, what that role should be. Furthermore, many existing federal
foreclosure prevention initiatives have been criticized as being ineffective. This has led some
policymakers to suggest that changes should be made to these initiatives to try to make them
more effective, while other policymakers have argued that some of these initiatives should be
eliminated entirely. In the 112th Congress, the House of Representatives passed a series of bills
that, if enacted, would have terminated several foreclosure prevention initiatives. However, these
bills were not considered by the Senate.
While many observers agree that slowing the pace of foreclosures is an important policy goal,
there are several challenges associated with designing foreclosure prevention initiatives. These
challenges include implementation issues, such as deciding who has the authority to make
mortgage modifications, developing the capacity to complete widespread modifications, and
assessing the possibility that homeowners with modified loans will default again in the future.
Other challenges are related to the perception of unfairness in providing help to one set of
homeowners over others, the problem of inadvertently providing incentives for borrowers to
default, and the possibility of setting an unwanted precedent for future mortgage lending.


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Contents
Introduction and Background .......................................................................................................... 1
Foreclosure Trends .................................................................................................................... 1
Impacts of Foreclosure .............................................................................................................. 3
The Policy Problem ................................................................................................................... 4
Why Might a Household Find Itself Facing Foreclosure? ......................................................... 4
Changes in Household Circumstances ................................................................................ 5
Mortgage Features ............................................................................................................... 5
Adjustable-Rate Mortgages........................................................................................... 6
Zero-Downpayment or Low-Downpayment Loans ...................................................... 6
Interest-Only Loans and Negative Amortization Loans ................................................ 7
Alt-A Loans ................................................................................................................... 7
Types of Loan Workouts ............................................................................................................ 8
Repayment Plans ........................................................................................................... 8
Interest Rate Reductions ............................................................................................... 8
Extended Loan Term/Extended Amortization ............................................................... 9
Principal Forbearance ................................................................................................... 9
Principal Write-Downs/Principal Forgiveness .............................................................. 9
Current Foreclosure Prevention Initiatives ...................................................................................... 9
Making Home Affordable ........................................................................................................ 10
Home Affordable Refinance Program (HARP) ................................................................. 10
Changes to HARP Announced in October 2011 (“HARP 2.0”) .................................. 11
HARP Results to Date ................................................................................................. 12
Home Affordable Modification Program (HAMP) ........................................................... 12
HAMP Funding ........................................................................................................... 14
HAMP Results to Date ................................................................................................ 15
Conversion of Trial Modifications to Permanent Status ............................................. 17
Treasury’s Assessments of Servicer Performance ....................................................... 18
Additional HAMP Components and Major Program Changes ......................................... 19
Second Lien Modification Program (2MP)................................................................. 19
Home Affordable Foreclosure Alternatives Program (HAFA) .................................... 19
Home Affordable Unemployment Program (UP) ....................................................... 20
Principal Reduction Alternative (PRA) ....................................................................... 21
Home Price Decline Protection Incentives ................................................................. 21
HAMP “Tier 2” ........................................................................................................... 21
Additional Changes ..................................................................................................... 22
Hardest Hit Fund ..................................................................................................................... 23
FHA Short Refinance Program ................................................................................................ 26
Other Existing Government Initiatives .......................................................................................... 27
Foreclosure Counseling Funding for NeighborWorks America .............................................. 27
Foreclosure Mitigation Efforts Targeted to Servicemembers .................................................. 28
National Mortgage Settlement ................................................................................................. 29
Other Foreclosure Prevention Proposals ........................................................................................ 29
Changing Bankruptcy Law ...................................................................................................... 29
Increased Use of Principal Reduction ..................................................................................... 30
Issues and Challenges Associated with Preventing Foreclosures .................................................. 31
Who Has the Authority to Modify Mortgages? ....................................................................... 31
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Volume of Delinquencies and Foreclosures ............................................................................ 32
Servicer Incentives .................................................................................................................. 32
Possibility of Re-default .......................................................................................................... 33
Distorting Borrower Incentives ............................................................................................... 34
Fairness Issues ......................................................................................................................... 34
Precedent ................................................................................................................................. 35

Figures
Figure 1. Percentage of Mortgages in the Foreclosure Process ....................................................... 2
Figure 2. Total Active HAMP Modifications by Month ................................................................ 16
Figure 3. New Trial and Permanent HAMP Modifications by Month ........................................... 17

Tables
Table 1. Number of HARP Refinances .......................................................................................... 12
Table 2. Number of HAMP Modifications .................................................................................... 15
Table 3. Hardest Hit Fund Allocations to States ............................................................................ 25
Table 4. Funding for the National Foreclosure Mitigation Counseling Program .......................... 28
Table A-1. Comparison of Select Federal Foreclosure Prevention Programs ................................ 36
Table B-1. Emergency Homeowners Loan Program Allocations to States .................................... 45

Appendixes
Appendix A. Comparison of Recent Federal Foreclosure Prevention Initiatives .......................... 36
Appendix B. Recently Ended Foreclosure Prevention Initiatives.................................................. 45

Contacts
Author Contact Information........................................................................................................... 54

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Introduction and Background
The foreclosure rate in the United States began to rise rapidly around the middle of 2006, and has
remained elevated since that time. The large increase in home foreclosures has negatively
impacted individual households, local communities, and the economy as a whole. Consequently,
an issue before Congress has been whether to use federal resources and authority to help prevent
some home foreclosures and, if so, how to best accomplish this objective. This report provides
background on the increase in foreclosure rates in recent years. It also describes recent attempts to
preserve homeownership that have been implemented by the federal government, and briefly
outlines current proposals for further foreclosure prevention activities. It concludes with a
discussion of some of the challenges inherent in designing foreclosure prevention initiatives.
Foreclosure refers to formal legal proceedings initiated by a mortgage lender against a
homeowner after the homeowner has missed a certain number of payments on his or her
mortgage.1 When a foreclosure is completed, the homeowner loses his or her home, which is
either repossessed by the lender or sold at auction to repay the outstanding debt. In general, the
term “foreclosure” can refer to the foreclosure process or the completion of a foreclosure. This
report deals primarily with preventing foreclosure completions.
In order for the foreclosure process to begin, two things must happen: a homeowner must fail to
make a certain number of payments on his or her mortgage, and a lender must decide to initiate
foreclosure proceedings rather than pursue other options (such as offering a repayment plan or a
loan modification). A borrower that misses one or more payments is usually referred to as being
delinquent on a loan; when a borrower has missed three or more payments, he or she is generally
considered to be in default. Lenders can choose to begin foreclosure proceedings after a
homeowner defaults on his or her mortgage, although lenders vary in how quickly they begin
foreclosure proceedings after a borrower goes into default. Furthermore, the rules governing
foreclosures, and the length of time the process takes, vary by state.
Foreclosure Trends
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; for example, between 2000 and 2003, the number
of refinanced mortgage loans jumped from 2.5 million to over 15 million.2 Around the same time,
subprime lending, which generally refers to making mortgage loans to individuals with credit
scores that are too low to qualify for prime rate mortgages, also began to increase, reaching a
peak between 2004 and 2006. However, beginning in 2006 and 2007, home sales started to

1 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
Darryl E. Getter.
2 U.S. Department of Housing and Urban Development, Office of Policy Development and Research, An Analysis of
Mortgage Refinancing, 2001-2003, November 2004, p.1, http://www.huduser.org/Publications/pdf/
MortgageRefinance03.pdf.
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decline, home prices stopped rising and began to fall in many regions, and the rates of
homeowners becoming delinquent on their mortgages or going into foreclosure began to increase.
The percentage of home loans in the foreclosure process in the U.S. 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, 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 compared to the early and mid-2000s. In the second quarter of
2013, the rate of loans in the foreclosure process was about 3.3%.
Figure 1 illustrates the trends in the rates of all mortgages, subprime mortgages, and prime
mortgages in the foreclosure process over the past several years.
Figure 1. Percentage of Mortgages in the Foreclosure Process
Q1 2001 – Q2 2013

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 about 80% 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 second
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quarter of 2013, the rate of subprime loans in the foreclosure process was about 11%, while the
rate of prime loans in the foreclosure process was about 2%.
In addition to mortgages that were in the foreclosure process, an additional 2.55% of all
mortgages were 90 or more days delinquent but not yet in foreclosure in the second quarter of
2013. These are mortgages that are in default and generally could be in the foreclosure process,
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 dealing with,
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, 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.
Impacts of Foreclosure
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.3
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 facing foreclosure may be required to move, even if they are current on their rent
payments. 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 a large increase in foreclosures could increase homelessness, either because families
who lost 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.
If foreclosures are concentrated, they can also have negative impacts on communities. Many
foreclosures in a single neighborhood may depress surrounding home values.4 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,

3 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.
4 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.
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which can lose property tax revenue and may have to step in to maintain vacant foreclosed
properties.
The Policy Problem
There has been a broad bipartisan consensus that the rapid rise in foreclosures has had negative
consequences on households and communities. 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.”5 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.”6
There is 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 being a compassionate response to the
plight of individual homeowners, 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, Congress and the executive branch
have both taken actions aimed at preventing foreclosures in recent years. Many private companies
and state and local governments have also undertaken their own foreclosure prevention efforts,
although these efforts are not the focus of this report.
Why Might a Household Find Itself Facing Foreclosure?
There are many reasons that a household might fall behind 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. The reasons households might have difficulty

5 Representative Spencer Bachus, “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.
6 Senator Chris Dodd, “Dodd Statement on Government Loan Modification Program,” statement, November 11, 2008,
http://dodd.senate.gov/?q=node/4620.
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making their 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 recent decline in home prices in many communities nationwide has
left many homeowners “underwater,” meaning that they owe more on their mortgages than the
houses are worth.7 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 recent macroeconomic trend has been high
unemployment. More households experiencing job loss and the resultant income loss have 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 previous years, 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.8 While borrowers with traditional mortgages are not immune

7 Owing more on the mortgage than the home is worth is also known as having “negative equity” in the home.
According to CoreLogic, a data research firm, nearly 11 million households, or about 22% of all properties with a
mortgage, had negative equity in their homes as of the second quarter of 2012. See CoreLogic, “CoreLogic Reports
Number of Residential Properties in Negative Equity Decreases Again in Second Quarter of 2012,” press release,
September 12, 2012, http://www.corelogic.com/about-us/researchtrends/asset_upload_file486_16724.pdf.
8 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
Edward V. Murphy.
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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.
Adjustable-Rate Mortgages
With an adjustable-rate mortgage (ARM), a borrower’s interest rate can change at predetermined
intervals, often based on changes in an index. The new interest rate can be higher or lower than
the initial interest rate, and monthly payments can also be higher or lower based on both the new
interest rate and any interest rate or payment caps.9 Some ARMs also include an initial low
interest rate known as a teaser rate. After the initial low-interest period ends and the new interest
rate kicks in, the monthly payments that the borrower must make may increase, possibly by a
significant amount.
Adjustable-rate mortgages make economic sense for some borrowers, especially if interest rates
are expected to go down in the future. ARMs can help people own a home sooner than they may
have been able to otherwise, or make sense for borrowers who cannot afford a high loan payment
in the present but expect a significant increase in income in the future that would allow them to
afford higher monthly payments. Furthermore, the interest rate on ARMs tends to follow short-
term interest rates in the economy; if the gap between short-term and long-term rates gets very
wide, it might make sense for borrowers to choose an ARM even if they expect interest rates to
rise in the future. Finally, in markets with rising property values, borrowers with ARMs may be
able to refinance their mortgages to avoid higher interest rates or large increases in monthly
payments. However, if home prices fall, refinancing the mortgage or selling the home to pay off
the debt may not be feasible, leaving the homeowner with higher mortgage payments if interest
rates rise.
Zero-Downpayment or Low-Downpayment Loans
As the name suggests, zero-downpayment and low-downpayment loans require either no
downpayment or a significantly lower downpayment than has traditionally been required. These
types of loans make it easier for homebuyers who do not have a lot of cash up-front to purchase a
home. This type of loan may be especially useful in areas where home prices are rising more
rapidly than income, because it allows borrowers without enough cash for a large downpayment
to enter markets they could not otherwise afford. However, a low- or no-downpayment loan also
means that families have little or no equity in their homes in the early phases of the mortgage,
making it difficult to sell the home or refinance the mortgage in response to a change in
circumstances if home prices decline. Such loans may also mean that a homeowner takes out a
larger mortgage than he or she would otherwise.

9 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.
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Interest-Only Loans and Negative Amortization Loans
With an interest-only loan, borrowers pay only the interest on a mortgage—but no part of the
principal—for a set period of time. This option increases the homeowner’s monthly payments in
the future, after the interest-only period ends and the principal amortizes. These types of loans
limit a household’s ability to build equity in its home, making it difficult to sell or refinance the
home in response to a change in circumstances if home prices are declining.
With a negative amortization loan, borrowers have the option to pay less than the full amount of
the interest due for a set period of time. The loan “negatively amortizes” as the remaining interest
is added to the outstanding loan balance. Like interest-only loans, this option increases future
monthly mortgage payments when the principal and the balance of the interest amortizes. These
types of loans can be useful in markets where property values are rising rapidly, because
borrowers can enter the market and then use the equity gained from rising home prices to
refinance into loans with better terms before payments increase. They can also make sense for
borrowers who currently have low incomes but expect a significant increase in income in the
future. However, when home prices stagnate or fall, interest-only loans and negative amortization
loans can leave borrowers with negative equity, making it difficult to refinance or sell the home to
pay the mortgage debt.
Alt-A Loans
Alt-A loans are mortgages that are similar to prime loans, but for one or more reasons do not
qualify for prime interest rates. One example of an Alt-A loan is a low-documentation or no-
documentation loan. These are loans to borrowers with good credit scores but little or no income
or asset documentation. Although no-documentation loans allow for more fraudulent activity on
the part of both borrowers and lenders, they may be useful for borrowers with income that is
difficult to document, such as those who are self-employed or work on commission. Other
examples of Alt-A loans are loans with high loan-to-value ratios or loans to borrowers with credit
scores that are too low for a prime loan but high enough to avoid a subprime loan. In all of these
cases, the borrower is charged a higher interest rate than he or she would be charged with a prime
loan to compensate for the increased credit risk of the borrower.
While all of these types of loans often 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 downpayment. Stagnant or falling home prices in many
regions also hampered borrowers’ ability to build equity in their homes. 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.
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Types of Loan Workouts
When a household falls behind on its mortgage, there are options that lenders or mortgage
servicers10 may be able to employ as an alternative to beginning foreclosure proceedings. Some of
these options, such as a short sale and a deed-in-lieu of foreclosure,11 allow a homeowner to avoid
the foreclosure process but still result in a household losing its home. This section describes
methods of avoiding foreclosure that allow homeowners to keep their homes; these options
generally take the form of repayment plans or loan modifications.
Repayment Plans
A repayment plan allows a delinquent borrower to become up-to-date on his or her 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. With an
interest rate reduction, 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.

10 Mortgage lenders are the organizations that make mortgage loans to individuals. Often, the mortgage is managed by
a company known as a servicer; servicers usually have the most contact with the borrower, and are responsible for
actions such as collecting mortgage payments, initiating foreclosures, and communicating with troubled borrowers. The
servicer can be an affiliate of the original mortgage lender or can be a separate company. Many mortgages are
repackaged into mortgage-backed securities (MBS) that are sold to institutional investors. Servicers are usually subject
to contracts with mortgage lenders and MBS investors that may limit their ability to undertake loan workouts or
modifications; the scope of such contracts and the obligations that servicers must meet vary widely.
11 In a short sale, a household sells its home for less than the amount it owes on its mortgage, and the lender generally
accepts 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.
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Extended Loan Term/Extended Amortization
Another option for lowering 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 U.S. have an
initial loan term of 25 or 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 Write-Downs/Principal Forgiveness
A principal write-down or principal forgiveness 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.12
Current Foreclosure Prevention Initiatives
In the past several years, the federal government has implemented a variety of initiatives to
attempt to address the high rates of residential mortgage foreclosures. Some of these initiatives
have been enacted by Congress, while others have been created administratively by both the Bush
and Obama administrations. This section describes federal foreclosure prevention initiatives that
are currently active. Appendix B describes additional foreclosure prevention initiatives that have
been implemented in recent years, but that are no longer in effect.
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

12 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, 2014. 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 Mark P. Keightley and Erika K. Lunder.
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agencies, and others that formed in October 2007 with the encouragement of the federal
government to engage in active outreach efforts to troubled borrowers.13 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.
Making Home Affordable
On February 18, 2009, President Obama announced the Making Home Affordable (MHA)
program, aimed at helping homeowners who are having difficulty making their mortgage
payments avoid foreclosure.14 Making Home Affordable includes separate initiatives to make it
easier for certain homeowners to refinance or modify their mortgages. These initiatives are
known as the Home Affordable Refinance Program (HARP) and the Home Affordable
Modification Program (HAMP), respectively, and each is described in the following subsections.
Home Affordable Refinance Program (HARP)
The refinancing initiative under MHA is the Home Affordable Refinance Program. HARP allows
homeowners with mortgages owned or guaranteed by Fannie Mae or Freddie Mac15 to refinance
into loans with more favorable terms even if they owe more than 80% of the value of their homes.
Generally, borrowers who owe more than 80% of the value of their homes have difficulty
refinancing because they do not have enough equity in their homes. Because they cannot
refinance their mortgages, they cannot take advantage of lower interest rates. 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.16 Originally, qualified borrowers were eligible to refinance under this program
if they owed up to 105% of the value of their homes. 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, the Federal Housing Finance Agency (FHFA), Fannie’s and Freddie’s
conservator, announced that it would remove the loan-to-value ratio cap entirely.

13 For a full list of current members of the HOPE NOW Alliance, see the HOPE NOW website at
https://www.hopenow.com/members.php.
14 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.
15 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 put under
the conservatorship of 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 N. Eric Weiss and Michael V. Seitzinger,
and for more information on the conservatorship, see CRS Report RS22950, Fannie Mae and Freddie Mac in
Conservatorship, by Mark Jickling.
16 The program is completely voluntary, and lenders are not required to refinance mortgages through HARP even if the
mortgages meet all of the eligibility criteria.
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In addition to having a mortgage owned or guaranteed by Fannie Mae or Freddie Mac,17 a
borrower must have a mortgage on a single-family home, the original mortgage must have been
closed on or before May 31, 2009,18 and the borrower must be current on the mortgage payments
in order to be eligible for this program, among other eligibility criteria. Rather than targeting
homeowners who are behind on their mortgage payments, this piece of the MHA plan targets
homeowners who have kept up with their payments but have lost equity in their homes due to
falling home prices. HARP is scheduled to end on December 31, 2015.19
Changes to HARP Announced in October 2011 (“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.20 As discussed earlier, one of
these changes removed 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%. Another change is that Fannie Mae
and Freddie Mac have eliminated or reduced certain fees that are paid by borrowers who
refinance through HARP. Fannie and Freddie will also waive certain representations and
warranties made by lenders on the original loans, which may make lenders more likely to
participate in HARP by releasing them from some responsibility for any defects in the original
loan. The changes also encourage greater use of automated valuation models instead of property
appraisals in order to streamline the refinancing process. Finally, as part of these HARP changes,
FHFA extended the end date for the program to December 31, 2013, although it has since been
extended again, to December 31, 2015.
Fannie Mae and Freddie Mac have each released their own guidance governing how the HARP
changes will be implemented for loans that they own or guarantee.21 Many of these changes

17 Borrowers can look up whether their loan is owned by Fannie Mae or Freddie Mac at
http://makinghomeaffordable.gov/loan_lookup.html.
18 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.
19 HARP was originally scheduled to expire on June 10, 2010. The Federal Housing Finance Agency has extended the
program four 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 by another year, until June 30, 2012. In October 2011,
FHFA announced that it would extend the program until December 31, 2013, and in April 2013, it announced that it
would extend the program until December 31, 2015. 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, and “FHFA Extends HARP to 2015,” April 11, 2013, http://www.fhfa.gov/webfiles/
25112/HARPextensionPRFINAL41113.pdf.
20 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.
21 Fannie Mae’s detailed guidance on the program changes can be found at https://www.efanniemae.com/sf/guides/ssg/
annltrs/pdf/2011/sel1112.pdf. Freddie Mac’s detailed guidance on the changes can be found at
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became effective in December 2011 or January 2012; however, specific changes went into effect
on different dates, and the effective dates can vary between Fannie Mae and Freddie Mac.
Individual lenders might also vary in when they implemented the program changes, or, since
HARP is not mandatory, whether they adopted all of the changes allowed by FHFA.
In addition to these changes to HARP, legislation has been introduced in both the 112th and 113th
Congresses to make further changes to the program in an attempt to expand access to HARP to
more borrowers. Furthermore, some policymakers have proposed a HARP-like program to make
it easier for borrowers in negative equity positions whose loans are not backed by Fannie Mae or
Freddie Mac to refinance. For a more in-depth discussion of such proposals, see CRS Report
R42480, Reduce, Refinance, and Rent? The Economic Incentives, Risks, and Ramifications of
Housing Market Policy Options, by Sean M. Hoskins.
HARP Results to Date
The Administration originally estimated that HARP could help up to between 4 million and 5
million homeowners. According to the Federal Housing Finance Agency (FHFA), Fannie Mae
and Freddie Mac refinanced nearly 2.9 million loans with loan-to-value ratios above 80% through
August 2013.22 The majority of these mortgages (over 2 million) had loan-to-value ratios between
80% and 105%, while just fewer than 500,000 mortgages had loan-to-value ratios above 105% up
to 125% and nearly 400,000 mortgages had loan-to-value ratios above 125%. Table 1 shows the
number of HARP refinances completed by Fannie Mae and Freddie Mac since the program
began.
Table 1. Number of HARP Refinances
As of August 2013

Fannie Mae
Freddie Mac
Total
LTV over 80% up to 105%
1,202,164
818,131
2,020,295
LTV over 105% up to 125%
273,655
219,999
493,654
LTV over 125%
221,890
151,017
372,907
Total 1,697,709
1,189,147
2,886,856
Source: Federal Housing Finance Agency Refinance Report, August 2013.
Home Affordable Modification Program (HAMP)
The mortgage modification piece of the Administration’s Making Home Affordable program is
the Home Affordable Modification Program (HAMP).23 Through HAMP, the government
provides financial incentives to participating mortgage servicers that provide loan modifications

(...continued)
http://www.freddiemac.com/sell/guide/bulletins/pdf/bll1122.pdf.
22 Federal Housing Finance Agency, Refinance Report: August 2013, p. 3, http://www.fhfa.gov/webfiles/25620/
August2013RefiReport.pdf.
23 HAMP shares many features of earlier foreclosure prevention programs, such as the Federal Deposit Insurance
Corporation’s plan to modify loans held by the failed IndyMac Bank, and Fannie Mae’s and Freddie Mac’s Streamlined
Modification Program. These programs are described in detail in Appendix B.
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to eligible troubled borrowers in order to reduce the borrowers’ monthly mortgage payments to no
more than 31% of their monthly income.24 Modifications can be made through HAMP until
December 31, 2015,25 unless the program is terminated before that date.26
In order to qualify for HAMP, a borrower must have a mortgage on a single-family (one-to-four
unit) property that was originated on or before January 1, 2009, must live in the home as his or
her primary residence, and must have an unpaid principal balance on the mortgage that is no
greater than $729,750 for a one-unit property. Furthermore, the borrower must currently be
paying more than 31% of his or her monthly gross income toward mortgage payments, and must
be experiencing a financial hardship that makes it difficult to remain current on the mortgage.
Borrowers need not already be delinquent on their mortgages in order to qualify, but default must
be “reasonably foreseeable.”
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. 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 reduce borrowers’ payments by reducing the interest rate, extending the loan
term, and forbearing principal, in that order, as necessary to reach the payment ratio. (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. Borrowers must make modified payments on time during a three-
month trial period before the modification can be converted to permanent status.
The Home Affordable Modification Program is voluntary,27 but once a servicer signs an
agreement to participate in the program, that servicer is bound by the rules of the program and is
required to modify eligible mortgages according to the program guidelines. The government
provides incentives to servicers, investors, and borrowers for participation. Servicers receive an

24 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 similar to the guidance for non-GSE mortgages, but there are some differences.
25 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, and in May 2013 the Administration announced
that it would extend the program until December 31, 2015. See http://www.treasury.gov/connect/blog/Pages/
Expanding-our-efforts-to-help-more-homeowners-and-strengthen-hard-hit-communities.aspx and http://portal.hud.gov/
hudportal/HUD?src=/press/press_releases_media_advisories/2013/HUDNo.13-083.
26 During the 112th 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.
27 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.
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upfront incentive payment for each successful permanent loan modification, an additional
payment for modifications made for borrowers who are not yet delinquent, and a “pay-for-
success” payment for up to three years if the borrower remains current after the modification. 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.
Investors receive the payment cost-share incentive (that is, the government’s payment of half the
cost of reducing the monthly mortgage payment from 38% to 31% of monthly income), and can
receive incentive payments for loans modified before a borrower becomes delinquent.
HAMP has been modified or updated a number of times since it was first established, including
changes to the program’s rules and the implementation of additional HAMP programs to attempt
to assist certain groups, such as unemployed borrowers or borrowers with negative equity. These
changes are described in the “Additional HAMP Components and Major Program Changes”
section.
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,28 and $25 billion was to
come from Fannie Mae and Freddie Mac for the costs of modifying mortgages that those entities
own or guarantee.29
Treasury has since 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).Treasury has now committed $38.5 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 up to just over $1 billion is committed to the FHA Short Refinance
Program.30
As of November 14, 2013, nearly $10 billion of the funding committed to these programs has
been disbursed. Of that amount, $6.8 billion has been disbursed for HAMP and its related
programs.31

28 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 Baird
Webel.
29 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.
30 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.
31 U.S. Department of the Treasury, Daily TARP Update for 11/14/2013, http://www.treasury.gov/initiatives/financial-
stability/reports/Documents/Daily%20TARP%20Update%20-%2011.14.2013.pdf.
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HAMP Results to Date
The Administration originally estimated that HAMP could eventually help up to between 3
million and 4 million homeowners. The Treasury Department releases monthly reports detailing
the program’s progress. 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.32 (As noted earlier,
borrowers must successfully complete a three-month trial period before the modification is
converted to permanent status.)
According to the September 2013 monthly report, there were about 969,000 active HAMP
modifications as of the end of September 2013. Of these, about 60,000 were active trial
modifications and about 909,000 were active permanent modifications.33 Table 2 shows the
number of HAMP trial modifications that have started since the program began, along with the
number of each that are currently active.
Table 2. Number of HAMP Modifications
As of September 2013

Trial Modifications
Permanent Modifications
Total
Al Started
2,109,130
1,268,635
N/A
Currently Active
59,795
909,220
969,015
Source: Making Home Affordable Program Performance Report Through September 2013.
Figure 2 illustrates the total number of modifications, both trial and permanent, that have been
active in each month since January 2010. Since mid-2010, the total number of active
modifications has gradually increased, driven by an increasing number of active permanent
modifications. The total number of active trial modifications has generally been decreasing as
trial modifications convert to permanent status or are canceled, and fewer new trial modifications
have been started as the program has aged.

32 Treasury’s monthly reports on HAMP can be found at http://www.treasury.gov/initiatives/financial-stability/reports/
Pages/Making-Home-Affordable-Program-Performance-Report.aspx.
33 U.S. Department of the Treasury, Making Home Affordable Program Servicer Performance Report Through
September 2013, p. 3, http://www.treasury.gov/initiatives/financial-stability/reports/Documents/
September%202013%20MHA%20Report%20Final.pdf.
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Figure 2. Total Active HAMP Modifications by Month
January 2010–September 2013

Source: Figure created by CRS based on data from Treasury’s monthly Making Home Affordable Program
Servicer Performance Reports.
Figure 3 shows the number of new HAMP trial modifications and new HAMP permanent
modifications that have started in each month from January 2010 to the present. As the figure
illustrates, the number of new trials declined sharply during the beginning of 2010. This was
probably at least in part due to a program change that required servicers to verify a borrower’s
income information before approving a trial modification, rather than allowing servicers to verify
borrower income during the trial period but before the modification became permanent. (This
change is described further in the following section.)
From around May 2010 through the end of 2011, the number of new trial modifications that
began each month fluctuated within a range of between about 20,000 and 40,000. Since then, the
number of new trial modifications that have started each month has generally been fewer than
20,000. The number of new permanent modifications started each month has decreased from a
peak of 68,000 in April 2010. Like the number of new trial modifications, the number of new
permanent modifications started each month in 2011 was generally between 20,000 and 40,000,
and since then has generally been between 10,000 and 20,000.
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Figure 3. New Trial and Permanent HAMP Modifications by Month
January 2010–September 2013

Source: Figure created by CRS based on data from Treasury’s monthly Making Home Affordable Program
Servicer Performance Reports.
Conversion of Trial Modifications to Permanent Status
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 order for a modification to become permanent, a borrower must make all of the
trial period payments on time, and must submit all necessary documentation (such as tax returns,
proof of income, and a signed Modification Agreement) to the servicer. In response to these
concerns, Treasury took a number of steps to attempt to facilitate the conversion of trial
modifications to permanent modifications.
One major change implemented by Treasury was requiring servicers to have documented income
information from borrowers before offering a trial modification. This change has been in place
since June 2010.34 When the program first began, servicers had been allowed to begin a trial
modification based on stated income information in order to get trial modifications started more
quickly, but the servicers had to verify this information in order for a modification to become
permanent. 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
September 2013, Treasury reported that 88% of trial modifications that had begun since June 1,
2010 had converted to permanent status.35

34 For Treasury’s guidance on this change, see 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.
35 U.S. Department of the Treasury, Making Home Affordable Program Performance Report Through September 2013,
p. 16, http://www.treasury.gov/initiatives/financial-stability/reports/Documents/
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Other steps that Treasury took included outreach efforts to borrowers to help them understand and
meet the program’s documentation requirements and increased reporting requirements and
monitoring of servicers.36 Beginning with the April 2010 monthly report, Treasury began
reporting conversion rates of trial modifications to permanent modifications for individual
servicers, along with other metrics related to individual servicers’ performance.
Treasury’s Assessments of Servicer Performance
In the April 2011 monthly report, 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
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.37 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 six of the ten largest servicers
were found to need moderate improvement, but Treasury did not withhold incentive payments
from those servicers.38
The results of the next quarterly servicer assessments, included in the July 2011 monthly report,
found that Bank of America and JP Morgan Chase continued to need substantial improvement,39
and the October 2011 monthly report found that only one servicer, JP Morgan Chase, was found
to need substantial improvement.40 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.41 As of the July 2013 monthly report, seven servicers were
included in the assessment, and all were found to need moderate improvement.42

(...continued)
September%202013%20MHA%20Report%20Final.pdf.
36 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.
37 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.
38 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.
39 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.
40 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.
41 U.S. Department of the Treasury, Making Home Affordable Program Performance Report through January 2012,
Servicer assessment results begin on page 18.
42 U.S. Department of the Treasury, Making Home Affordable Program Performance Report through July 2013, p. 21.
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Additional HAMP Components and Major Program Changes
Since the program’s announcement, Treasury has announced several changes to HAMP, as well as
a number of additional components or subprograms that operate under HAMP. The subprograms
that operate under HAMP include the following:
Second Lien Modification Program (2MP)43
Many borrowers have second mortgages on their homes. Second mortgages can cause problems
for loan modification programs 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 are often 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.)
Under 2MP, if a servicer modifies a second lien, it can receive an upfront incentive payment of
$500. Servicers can also receive “pay-for-success” payments of up to $250 per year for up to
three years, if the monthly second mortgage payments are reduced by 6% or more and if the
borrower remains current on both the HAMP modification and the 2MP modification. Borrowers
can receive annual “pay-for-success” payments of up to $250 per year for up to five years (in the
form of principal reduction) if the second mortgage payments have been reduced by 6% or more
and if the borrowers remain current on both the HAMP and 2MP modifications. Investors can
receive compensation for modified second liens according to a cost-sharing formula. Servicers
can also receive incentives for extinguishing, rather than modifying, second liens, and investors
receive compensation for extinguished second liens according to a cost-sharing formula.
Treasury reports that about 77,000 second-lien modifications are active under 2MP as of
September 2013.44
Home Affordable Foreclosure Alternatives Program (HAFA)45
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.46 Servicers can receive incentive payments of $1,500

43 Servicer guidelines on 2MP are available at https://www.hmpadmin.com/portal/programs/second_lien.html.
44 U.S. Department of the Treasury, Making Home Affordable Program Servicer Performance Report Through
September 2013, p. 4, http://www.treasury.gov/initiatives/financial-stability/reports/Documents/
September%202013%20MHA%20Report%20Final.pdf.
45 Servicer guidelines on HAFA are available at https://www.hmpadmin.com/portal/programs/
foreclosure_alternatives.html.
46 Short sales and deeds-in-lieu are described in footnote 11. 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
(continued...)
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for each short sale or deed-in-lieu that is successfully executed, and borrowers can receive
incentive payments of $3,000 to help with relocation expenses.47 Investors can receive partial
reimbursement, up to a maximum of $5,000, if they agree to share a portion of the proceeds of the
short sale with any subordinate lienholders.48 (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 became active on April 5, 2010, although servicers had the
option to begin implementing the program before this date.
Treasury reports that about 226,000 HAFA transactions have been completed as of September
2013.49 Most of these transactions have been short sales rather than deeds-in-lieu of foreclosure.
Home Affordable Unemployment Program (UP)
On March 26, 2010, the Administration announced the Home Affordable Unemployment
Program (UP), which 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 twelve months, or until the borrower becomes re-employed.50
Borrowers’ mortgage payments are lowered to 31% or less of their monthly income through
principal forbearance during this time period. After the forbearance period ends, it is expected
that some borrowers will have regained employment and will not need further assistance. Other
borrowers, such as those who are re-employed but at a lower salary, may be able to qualify for a
regular HAMP modification. Still other borrowers may qualify for a foreclosure alternative such
as a short sale or a deed-in-lieu of foreclosure, and some borrowers ultimately may not be able to
avoid foreclosure. Participating servicers were required to begin offering forbearance plans to
qualified unemployed borrowers by July 1, 2010, but could choose to implement the program
earlier.51

(...continued)
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.
47 Treasury has increased the amount of incentive compensation offered under HAFA to these amounts since the
program was first announced.
48 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.
49 U.S. Department of the Treasury, Making Home Affordable Program Servicer Performance Report Through
September 2013, p. 5, http://www.treasury.gov/initiatives/financial-stability/reports/Documents/
September%202013%20MHA%20Report%20Final.pdf.
50 Originally, the forbearance period was three months. Treasury extended it to twelve 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.
51 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.
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Treasury reports that nearly 36,000 UP forbearance plans have been started as of September
2013.52
Principal Reduction Alternative (PRA)
Another change to HAMP announced on March 26, 2010, is the Principal Reduction Alternative
(PRA), in which 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.
Servicers will have to run two net present value tests for these borrowers: the first will be the
standard NPV test, and the second will include principal reduction. If the net present value of the
modification is higher under the test that includes principal reduction, servicers have the option to
reduce principal. However, they are not required to do so. If the principal is reduced, the amount
of the principal reduction will initially be treated as principal forbearance; the forborne amount
will then be forgiven in three equal amounts over three years as long as the borrower remains
current on his or her mortgage payments. The Administration will also offer incentives to
servicers specifically for reducing principal. The PRA went into effect on October 1, 2010.53
According to Treasury, about 119,000 PRA modifications were active as of September 2013.
Nearly 15,000 of these are active trial modifications, and nearly 105,000 are active permanent
modifications.54
Home Price Decline Protection Incentives
While not its own subprogram under HAMP, the HAMP guidelines also offer additional financial
incentives to encourage modifications in markets where home prices are continuing to fall. These
incentives are available to investors in connection with successful modifications in areas with
declining home prices, provided that the borrower’s monthly mortgage payment is reduced by at
least 6%. The calculation of these incentive payments takes into account the recent rate of home
price declines in the area where the home is located and the unpaid principal balance of the
mortgage.
HAMP “Tier 2”
In early 2012, Treasury announced a number of expansions to HAMP, which it refers to as HAMP
Tier 2.55 HAMP Tier 2 expands eligibility for HAMP to certain borrowers who are not eligible for
a standard HAMP modification (now referred to as HAMP Tier 1). Under HAMP Tier 2,
borrowers still have to meet many of the basic HAMP eligibility criteria, including having a
mortgage on a single-family property that was originated on or before January 1, 2009,

52 U.S. Department of the Treasury, Making Home Affordable Program Servicer Performance Report Through
September 2013, p. 4, http://www.treasury.gov/initiatives/financial-stability/reports/Documents/
September%202013%20MHA%20Report%20Final.pdf.
53 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.
54 U.S. Department of the Treasury, Making Home Affordable Program Servicer Performance Report Through
September 2013, p. 4, http://www.treasury.gov/initiatives/financial-stability/reports/Documents/
September%202013%20MHA%20Report%20Final.pdf.
55 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.
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experiencing a documented hardship, and having an unpaid principal balance below specified
thresholds. However, borrowers might be able to qualify even if they do not meet other
requirements to qualify for a standard HAMP modification, such as if they have a minimum debt-
to-income ratio that is already below 31% or if they do not live in the home as a primary
residence. For example, although HAMP Tier 1 requires borrowers to be owner-occupants, under
HAMP Tier 2 certain types of rental properties are eligible for HAMP modifications. In order for
a mortgage secured by a rental property to be eligible for HAMP Tier 2, the borrower must be
delinquent on the mortgage (mortgages in “imminent default” are not eligible), the property must
be currently occupied by a tenant or be vacant, and the borrower must certify that he or she
intends to rent the property for at least five years (although at any point in that five year period
the borrower can sell the home or choose to occupy it as a principal residence).
According to Treasury, a total of about 38,000 HAMP Tier 2 trial modifications had been started,
and about 21,500 HAMP Tier 2 permanent modifications had been started, as of September
2013.56
Additional Changes
Treasury has also made a number of changes to the rules governing HAMP since the program
began. Some of these changes have been minor, while others have made major changes to the
program. Some notable changes include the following:
• When HAMP began, Treasury allowed servicers to approve borrowers for trial
modifications on the basis of stated income information. Borrowers then had to
submit documentation verifying their income information before the trial
modification could convert to permanent status. In cases where the 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 resulted in borrowers who had been approved for a trial
modification being denied for a permanent modification. Since June 1, 2010,
Treasury requires all income information to be verified before a borrower can be
approved for a trial period plan.57 As described in the “HAMP Results to Date”
section, this change was expected to result in a greater proportion of trial
modifications converting to permanent status.
• The original HAMP guidelines prohibited servicers from conducting a
foreclosure sale while they were evaluating a borrower for HAMP, or while a
borrower was in a HAMP trial period. Servicers also were not allowed to refer
new loans to foreclosure during the 30-day window that borrowers had to submit
documentation indicating that they intended to accept a trial modification offer.
However, foreclosures in process were allowed to continue, as long as no
foreclosure sale occurred, and loans could be referred to foreclosure at the same
time that a borrower was being evaluated for HAMP. Since June 1, 2010,
Treasury prohibits servicers from referring eligible borrowers to foreclosure until

56 U.S. Department of the Treasury, Making Home Affordable Program Servicer Performance Report Through
September 2013, p. 3, http://www.treasury.gov/initiatives/financial-stability/reports/Documents/
September%202013%20MHA%20Report%20Final.pdf.
57 This change is described in detail in Treasury’s Supplemental Directive 10-01, issued on January 28, 2010, and
available at https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/sd1001.pdf.
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they have been evaluated for HAMP, or until reasonable outreach efforts have not
been successful. Foreclosures that were already in process prior to this change
were allowed to continue, although servicers had to take any actions that they had
the authority to undertake to halt foreclosure proceedings for borrowers in trial
modifications. Treasury also required enhanced disclosures to borrowers
explaining that the home would not be sold in a foreclosure sale while the
borrower was being evaluated for HAMP or was in a trial period.58
• Treasury has strengthened a number of other disclosure requirements since
HAMP began, including requiring increased disclosures to borrowers who were
denied a HAMP modification describing the reason for their denial. Treasury also
provided more guidance on the outreach efforts that servicers must make to
borrowers who may be eligible for HAMP.
• The Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203)
made some changes to HAMP. These changes included a requirement that
Treasury make a net present value test available on the internet, based on
Treasury’s NPV methodology, along with a disclaimer stating that specific
servicers’ NPV models may differ in some respects.59 Treasury launched this
online NPV calculator in May 2011, and it is available at
https://checkmynpv.com/. The law also requires that servicers provide borrowers
with certain NPV inputs upon denying the borrowers for HAMP modifications;
this differed from Treasury’s existing guidance, which required borrowers to ask
servicers to see certain NPV inputs within a certain time period if the borrower
was denied a modification due to a negative NPV result.
Hardest Hit Fund
On February 19, 2010, the Obama Administration announced that it would make up to a total of
$1.5 billion available to the housing finance agencies (HFAs) of five states that had experienced
the greatest declines in home prices. This program is known as the Hardest Hit Fund, and several
additional rounds of funding have been announced since its inception. The funding comes from
the TARP funds that Treasury initially set aside for HAMP. Therefore, all Hardest Hit Fund
funding must be used in ways that comply with the Emergency Economic Stabilization Act of
2008 (P.L. 110-343), which means that the funds must be used by eligible financial institutions
and must be used for purposes that are allowable under P.L. 110-343.60
The five states that received funding in the first round of the Hardest Hit Fund are California,
Arizona, Florida, Nevada, and Michigan.61 The Administration set maximum allocations for each

58 These changes are described in detail in Treasury’s Supplemental Directive 10-02, issued on March 24, 2010, and
available at https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/sd1002.pdf.
59 Servicers are allowed to use their own values for certain NPV inputs on the basis of their own portfolio experience,
but such allowed changes are limited and must be approved by Treasury.
60 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.
61 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.
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state based on a formula, and the HFAs of those states were required to submit their plans for the
funds to Treasury for approval in order to be awarded funds through the program. The
participating states can use the funding for a variety of programs that address foreclosures and are
tailored to specific areas, including programs to help unemployed homeowners, programs to help
homeowners who owe more than their homes are worth, or programs to address the challenges
that second liens pose to mortgage modifications.
On March 29, 2010, the Administration announced a second round of funding for the Hardest Hit
Fund. This second round of funding made up to a total of an additional $600 million available to
five states that had large proportions of their populations living in areas of economic distress,
defined as counties with unemployment rates above 12% in 2009 (the five states that received
funding in the first round were not eligible). The five states that received funding through this
second round are North Carolina, Ohio, Oregon, Rhode Island, and South Carolina. These states
can use the funds to support the same types of programs eligible under the first round of funding,
and are subject to the same requirements.62
On August 11, 2010, the Administration announced a third round of funding for the Hardest Hit
Housing Fund.63 This third round of funding makes a total of up to $2 billion available to 18
states and the District of Columbia, all of which had unemployment rates higher than the national
average over the previous year. Nine of the states that received funds through the third round of
funding also received funding in one of the previous two rounds of Hardest Hit Fund funding.64
The states that received funding in the third round but not in either of the previous two rounds are
Alabama, Georgia, Illinois, Indiana, Kentucky, Mississippi, New Jersey, Tennessee, and the
District of Columbia. Like the first two rounds of funding, states had to submit plans for the funds
for Treasury’s approval. Unlike the first two rounds of funding, states have to use funds from the
third round specifically for foreclosure prevention programs that target the unemployed.
In September 2010, Treasury announced an additional $3.5 billion of funding to be distributed to
the 18 states and the District of Columbia that were receiving funding through earlier rounds,
bringing the total amount of funding allocated to the Hardest Hit Fund to $7.6 billion. Table 3
shows the total maximum allocation of funds, through all rounds of funding, for each state that is
receiving funding through the Hardest Hit Fund, along with the amount that has actually been
disbursed to each state as of October 2013.65 (Funds that have been disbursed have been drawn
down by states, but may or may not have actually been spent by the states to date. In order to
draw down part of its allocation from Treasury, a state may not have more than 5% of its total
allocation on hand.) States have until December 31, 2017 to spend their Hardest Hit Fund
allocations.

62 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.
63 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.
64 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.
65 Descriptions of the programs that each state is funding through the Hardest Hit Fund are available at
http://www.financialstability.gov/roadtostability/hardesthitfund.html.
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Table 3. Hardest Hit Fund Allocations to States
(dollars in millions)
Total
Amount
% of Total Allocation
Funding
Disbursed as of
Disbursed as of
State
Allocated
October 31, 2013
October 31, 2013
Alabama $162.5

$34.0

21%
Arizona $267.8
$91.8
34%
California $1,975.3
$717.5
36%
Florida $1,057.8
$271.3
26%
Georgia $339.3
$77.5
23%
Illinois $445.6
$260.0
58%
Indiana $221.7
$66.3
30%
Kentucky $148.9
$64.0
43%
Michigan $498.6
$146.2
29%
Mississippi $101.9
$44.3
43%
Nevada $194.0
$98.8
51%
New Jersey
$300.5
$190.5
63%
North Carolina
$482.8
$270.5
56%
Ohio $570.4
$239.1
42%
Oregon $220.0
$155.0
70%
Rhode Island
$79.4
$66.5
84%
South Carolina
$295.4
$112.5
38%
Tennessee $217.3
$95.3
44%
Washington, DC
$20.7
$14.1
68%
Total $7,600.0
$3,015.2
40%
Source: Hardest Hit Fund website at http://www.financialstability.gov/roadtostability/hardesthitfund.html and
Department of the Treasury, Troubled Asset Relief Program (TARP) Monthly Report to Congress – October 2013,
http://www.treasury.gov/initiatives/financial-stability/reports/Documents/
October%202013%20Monthly%20Report%20to%20Congress.pdf.
As of the end of October 2013, about $4 billion, or about 40%, of all Hardest Hit Fund funds had
been disbursed to states. The percentages of their allocations that individual states have drawn
from Treasury range from a low of 21% (Alabama) to a high of 84% (Rhode Island), with most
states falling somewhere in between. According to Treasury, there are currently 66 Hardest Hit
Fund programs in the 19 states (including DC) that received Hardest Hit Fund allocations, with
about 69% of the funding being used for programs targeted to unemployed borrowers.66

66 U.S. Department of the Treasury, Troubled Asset Relief Program (TARP) Monthly Report to Congress – October
2013, p. 7, http://www.treasury.gov/initiatives/financial-stability/reports/Documents/
October%202013%20Monthly%20Report%20to%20Congress.pdf.
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FHA Short Refinance Program
On March 26, 2010, the Administration announced a new Federal Housing Administration (FHA)
Short Refinance Program for homeowners who owe more than their homes are worth. Detailed
program guidance was released on August 6, 2010.67 Under the program, certain homeowners
who owe more than their homes are worth may be able to refinance into new, FHA-insured
mortgages for an amount lower than the home’s current value. Specifically, the new mortgage
cannot have a loan-to-value ratio of more than 97.75%. The original lender will accept the
proceeds of the new loan as payment in full on the original mortgage; the new lender will have
FHA insurance on the new loan; and the homeowner will have a first mortgage balance that is
below the current value of the home, thereby giving him or her some equity. Homeowners must
be current on their mortgages to qualify for this program. Further, the balance on the first
mortgage loan must be reduced by at least 10%. This program is voluntary for lenders and
borrowers, and borrowers with mortgages already insured by FHA are not eligible.
The FHA Short Refinance Program is similar in structure to the Hope for Homeowners program
(described in Appendix B), which was still active at the time that the FHA Short Refinance
Program began but has since ended. However, there are some key differences between the two
programs. First, Hope for Homeowners required that any second liens be extinguished. Under the
FHA Short Refinance Program, second liens are specifically allowed to remain in place.
Incentives are offered for the second lien-holder to reduce the balance of the second lien, and the
homeowner’s combined debt on both the first and the second lien is not allowed to exceed 115%
of the value of the home after the refinance. Second, under Hope for Homeowners, borrowers
could be either current or delinquent on their mortgages and qualify for the program. Under the
FHA Short Refinance Program, borrowers must be current on their mortgages. Finally, under
Hope for Homeowners, borrowers had to agree to share some of their initial equity in the home
with the government when the house was eventually sold. The FHA Short Refinance Program
does not appear to require any equity or appreciation sharing.
The FHA Short Refinance Program began on September 7, 2010, and is to be available until
December 31, 2014, unless it is terminated before that date.68 As of January 2013, FHA reported
refinancing nearly 2,300 loans through the program.69 Treasury originally said that it would use
up to $8 billion of the TARP funds originally set aside for HAMP to pay for the cost of this
program, but has since reduced the total maximum amount that it will spend on the program to
just over $1 billion.70 Any additional program costs would be borne by FHA.

67 FHA Mortgagee Letter 2010-23, “FHA Refinance of Borrowers in Negative Equity Positions,” August 6, 2010,
available at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/.
68 During the 112th 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.
69 Federal Housing Administration, FHA Outlook, September 2012, p. 4, http://portal.hud.gov/hudportal/documents/
huddoc?id=ol_current.pdf, and FHA Outlook, January 2013, p. 4, http://portal.hud.gov/hudportal/documents/huddoc?
id=ol0113.pdf.
70 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.
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Other Existing Government Initiatives
A number of additional initiatives or policies have been implemented to attempt to stem the rise
in foreclosures and help more homeowners remain in their homes. Although some of these
initiatives are now obsolete, many continue to operate. (See Appendix B for a description of
earlier foreclosure prevention programs that are generally no longer operational.) This section
briefly describes certain other recent, ongoing federal programs and policies to prevent
foreclosure.
Foreclosure Counseling Funding for NeighborWorks America
Another federal effort to slow the rising number of foreclosures has been to provide additional
funding for housing counseling.71 In particular, Congress has provided funding specifically for
foreclosure mitigation counseling to be administered by NeighborWorks America, a non-profit
created by Congress in 1978 that has a national network of community partners.72 NeighborWorks
traditionally provides housing counseling to homebuyers and homeowners through its network
organizations, and also trains other non-profit housing counseling organizations in foreclosure
counseling.
The Consolidated Appropriations Act, 2008 (P.L. 110-161) provided $180 million for
NeighborWorks to distribute for foreclosure mitigation counseling, which it has done by setting
up the National Foreclosure Mitigation Counseling Program (NFMCP).73 NeighborWorks
competitively awards the funding to qualified housing counseling organizations.74 Congress
directed NeighborWorks to award the funding with a focus on areas with high default and
foreclosure rates on subprime mortgages. The Housing and Economic Recovery Act of 2008
(HERA, P.L. 110-289) provided an additional $180 million for NeighborWorks to distribute
through the NFMCP, $30 million of which was to be distributed to counseling organizations to
provide legal help to homeowners facing delinquency or foreclosure.
Since HERA, Congress has continued to provide funding for the NFMCP through annual
appropriations acts, in amounts ranging from $50 million to $80 million. In FY2013, Congress
provided $75.8 million for the NFMCP, after taking into account sequestration. Table 4 shows the
funding that has been provided for the NFMCP since its inception.

71 For more information on housing counseling, CRS Report R41351, Housing Counseling: Background and Federal
Role, by Katie Jones.
72 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.
73 For more information on the National Foreclosure Mitigation Counseling Program, see the NeighborWorks website
at http://www.nw.org/network/nfmcp/default.asp#info.
74 HUD-approved housing counseling intermediaries, state housing finance agencies, and NeighborWorks
organizations are eligible to receive funds through the NFMCP.
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Table 4. Funding for the National Foreclosure Mitigation Counseling Program
$ in millions
Law Date
Enacted Amount
Consolidated Appropriations Act,
December 26, 2007
$180
2008 (P.L. 110-161)
Housing and Economic Recovery
July 30, 2008
$180
Act of 2008 (P.L. 110-289)
Omnibus Appropriations Act,
March 11, 2009
$50
2009 (P.L. 111-8)
Consolidated Appropriations Act,
December 16, 2009
$65
2010 (P.L. 111-117)
Department of Defense and Ful -
April 15, 2011
$65
Year Continuing Appropriations
Act, 2011 (P.L. 112-10)
Consolidated and Continuing
November 18, 2011
$80
Appropriations Act, 2012 (P.L.
112-55)
Consolidated and Further
March 26, 2013
$76
Continuing Appropriations Act,
2013 (P.L. 113-6)
Source: P.L. 110-161, P.L. 110-289, P.L. 111-8, P.L. 111-117, P.L. 112-10, P.L. 112-55, P.L. 113-6 and the
NeighborWorks FY2013 Operating Plan, available at
http://www.nw.org/network/aboutUs/policy/documents/FY2013OperatingPlan.pdf.
Notes: The funds appropriated in P.L. 110-289 included funding for legal assistance for homeowners facing
foreclosure. Funding for FY2013 takes into account reductions due to sequestration and a 0.2% across-the-board
rescission.
Foreclosure Mitigation Efforts Targeted to Servicemembers
The federal government has made a number of efforts to prevent foreclosures specifically among
members of the Armed Forces. The Servicemembers Civil Relief Act (P.L. 108-189), which
became law on December 19, 2003, prohibits foreclosure completions on properties owned by
servicemembers during a period of military service or within 90 days of the servicemember’s
return from military service.75 The law also prohibits evictions of active servicemembers or their
dependents, subject to certain conditions.
The Housing and Economic Recovery Act of 2008 (HERA, P.L. 110-289) amended the
Servicemembers Civil Relief Act to extend the prohibition on foreclosure completions to nine
months after a servicemember’s return from military service until December 31, 2010. The
Helping Heroes Keep Their Homes Act of 2010 (P.L. 111-346) extended the nine-month
prohibition on foreclosure completions until December 31, 2012, and the Honoring America’s
Veterans and Caring for Camp Lejeune Families Act of 2012 (P.L. 112-154) increased the nine-
month prohibition to one year and extended it further until December 31, 2014. After that date,

75 This law is a revision of the Soldiers’ and Sailors’ Civil Relief Act of 1940 (P.L. 76-861), which itself was a revision
of the Soldiers’ and Sailors’ Civil Relief Act of 1918 (P.L. 65-103). Both earlier laws also included foreclosure
protections for members of the military on or recently returned from active duty.
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the original 90-day period will go back into effect, unless the longer period is again extended by
law. HERA also directed the Secretary of Defense to develop a foreclosure counseling program
for members of the Armed Forces returning from active duty abroad.
National Mortgage Settlement
In February 2012, 49 state attorneys general and several federal agencies announced a legal
settlement with five large mortgage servicers related to concerns regarding their servicing of
mortgages.76 While not strictly a federal foreclosure prevention initiative, the settlement requires
the five servicers to provide a minimum dollar amount of foreclosure relief to certain borrowers
whose loans are serviced by these institutions.77 In exchange, the servicers are released from
liability for certain civil claims that could otherwise have been raised against the servicers by the
participating regulators. Specifically, the five servicers will together provide about $25 billion in
aid to borrowers and payments to states and the federal government.78 The aid to borrowers may
take the form of loan modifications, including principal reduction; refinancing for borrowers who
owe more than their homes are worth; or payments to certain borrowers whose homes were
foreclosed on between 2008 and 2011. The servicers who are subject to the settlement are also
required to implement new standards related to how they service mortgages and communicate
with borrowers.
For details on the settlement, see http://nationalmortgagesettlement.com/ and CRS Report
R42919, Oversight and Legal Enforcement of the National Mortgage Settlement, by David H.
Carpenter.
Other Foreclosure Prevention Proposals
Some policymakers and others have argued that existing federal foreclosure prevention initiatives
have not been effective enough at reducing the foreclosure rate and keeping people in their
homes, and that more actions should be taken to assist troubled borrowers. This section briefly
outlines some options that have been proposed for further action to help prevent foreclosures.
Changing Bankruptcy Law
One method that has been suggested to help more homeowners remain in their homes is to amend
bankruptcy law to allow a judge to order a mortgage loan modification as part of a bankruptcy
proceeding. Bankruptcy judges currently have the authority to modify or reduce other types of

76 The five servicers are Ally Financial, Bank of America, Citigroup, JP Morgan Chase, and Wells Fargo. Oklahoma’s
attorney general did not join the settlement.
77 The total amount of aid that borrowers receive could be higher than the minimum dollar amount that the servicers are
required to provide. This is because servicers receive different amounts of credit towards the amount of relief that they
are required to provide depending on the type of borrower aid they offer, based on a complex formula. For example,
while servicers receive a dollar of credit for every dollar of some forms of relief that they provide, such as principal
reduction, they receive less than a dollar of credit for every dollar of other forms of relief, such as waiving deficiency
judgments.
78 Additional regulatory actions have been brought against these and other mortgage servicers, some of which have also
resulted in aid to borrowers. However, the mortgage settlement with the five largest servicers provides the largest dollar
amount of borrower assistance.
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outstanding debt obligations, including mortgages on second homes and vacation homes, but this
authority does not extend to mortgages on primary residences. Opponents of such a change do not
want judges to have such broad power to amend a contract after the fact. They argue that allowing
these “cramdowns” would make lenders more hesitant to make mortgage loans in the future,
since the threat of a loan being modified in this way could make mortgage lending more risky.
Supporters of amending bankruptcy law say that, in addition to helping a borrower in bankruptcy
avoid foreclosure through a court-mandated loan modification, such a change might also
encourage lenders to work with borrowers to modify loans before the bankruptcy process begins
in the first place.
During the 111th Congress, provisions to amend bankruptcy law to allow judges to modify
mortgages on primary residences were included in H.R. 1106, the Helping Families Save Their
Homes Act of 2009, which passed the House on March 5, 2009. However, bankruptcy provisions
were not included in the Senate’s version of the bill, S. 896, which passed the Senate on May 6,
2009. A modified version of the Senate bill was signed into law (P.L. 111-22) on May 20, 2009,
without the cramdown provision. For a description of some of these legislative proposals to
amend bankruptcy law to allow judges to order mortgage modifications, see CRS Report
RL34301, The Primary Residence Exception: Legislative Proposals in the 111th Congress to
Amend the Bankruptcy Code to Allow the Strip Down of Certain Home Mortgages, by David H.
Carpenter.
In the 112th Congress, bills were introduced to allow judges to modify mortgages on primary
residences in bankruptcy under certain circumstances (such as H.R. 4058 and H.R. 1587), but
were not reported out of committee. Similar bills (such as H.R. 101) have been introduced in the
113th Congress.
Increased Use of Principal Reduction
Some have called for more widespread use of principal reduction in loan modifications. In
mortgage modifications that include principal reduction, some of the principal amount that the
borrower owes is forgiven by the lender. Currently, mortgages that are not backed by Fannie Mae
or Freddie Mac or government agencies such as the Federal Housing Administration (FHA) are
eligible for principal reduction at the discretion of the mortgage holder. Programs such as the
HAMP Principal Reduction Alternative, described earlier in this report, provide incentives for
reducing principal for certain borrowers. However, the Federal Housing Finance Agency (FHFA),
the regulator of Fannie Mae and Freddie Mac, has not allowed principal reduction on mortgages
backed by those entities.
The use of principal reduction in modifications has been increasing somewhat, but is only used in
about 12% of modifications.79 Some policymakers and advocates have urged a wider use of
principal reduction, and have argued that Fannie Mae and Freddie Mac should be allowed or
required to reduce principal on certain mortgages that they own or guarantee. Given that nearly 7

79 Office of the Comptroller of the Currency, Mortgage Metrics Report Second Quarter 2013, p. 22,
http://www.occ.gov/publications/publications-by-type/other-publications-reports/mortgage-metrics-2013/mortgage-
metrics-q2-2013.pdf. According to the OCC, principal reduction was used in 12.1% of mortgage modifications
completed in the second quarter of 2013, which represented a decrease in the share of modifications that included
principal reduction from the second quarter of 2012, when 15.4% of modifications included principal reduction.
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million households with mortgages currently owe more than their homes are worth,80 advocates
of principal reduction argue that it could be an effective tool in preventing foreclosures.
Proponents of principal reduction suggest that it might provide an advantage over other types of
modifications because it better aligns the amount a borrower owes with the amount that the house
is worth, possibly giving borrowers more of an incentive to remain current on the modified
mortgage. Advocates also argue that reducing principal can be in the best interest of mortgage
holders if the cost of principal reduction is less than the cost of foreclosure. Opponents of more
widespread use of principal reduction argue that monthly mortgage payments can be reduced
without forgiving mortgage principal, that reducing principal for some borrowers is unfair to
others who do not benefit from such relief, and that greater use of principal reduction could
encourage some people to default on their mortgages to try to qualify for principal reduction.
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 112th Congress,
see CRS Report R42480, Reduce, Refinance, and Rent? The Economic Incentives, Risks, and
Ramifications of Housing Market Policy Options, by Sean M. Hoskins.
Issues and Challenges Associated with
Preventing Foreclosures
There are several challenges associated with designing successful programs to prevent
foreclosures. Some of these challenges are practical and concern issues surrounding the
implementation of loan modifications. Other challenges are more conceptual, and are related to
questions of fairness and precedent. This section describes some of the most prominent
considerations involved in programs to preserve homeownership.
Who Has the Authority to Modify Mortgages?
In recent years, the practice of lenders packaging mortgages into securities and selling them to
investors has become more widespread. This practice is known as securitization, and the
securities that include the mortgages are known as mortgage-backed securities (MBS). When
mortgages are sold through securitization, several players become involved with any individual
mortgage loan, including the lender, the servicer, and the investors who hold shares in the MBS.
The servicer is usually the organization that has the most contact with the borrower, including
receiving monthly payments and initiating any foreclosure proceedings. However, servicers are
usually subject to contracts with investors which limit the activities that the servicer can
undertake and require it to safeguard the investors’ profit. One major question that has faced
foreclosure prevention programs, therefore, is who actually has the authority to make a loan
modification. Contractual obligations may limit the amount of flexibility that servicers have to
modify loans in ways that could arguably yield a lower return for investors. In some cases, loan
modifications can result in less of a loss for investors than foreclosure; however, servicers may
not want to risk having investors challenge their assessment that a modification is more cost-
effective than a foreclosure. This problem can be especially salient in streamlined programs in

80 CoreLogic, CoreLogic Equity Report, Second Quarter 2013, p. 2, http://www.corelogic.com/research/negative-
equity/corelogic-q2-2013-equity-report.pdf.
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which large numbers of loans are modified at once. With such streamlined programs, the cost-
effectiveness of loan modifications depends on questions such as how many loans would have
likely ended up in foreclosure without the modification, making it more difficult to say whether
wholesale loan modifications are in the best interest of investors.
One possible way to partially address the question of who can modify mortgages is to provide a
safe harbor for servicers. In general, a safe harbor protects servicers who engage in certain
mortgage modifications from lawsuits brought by investors. While proponents of a safe harbor
believe that a safe harbor is necessary to encourage servicers to modify more mortgages without
fear of legal repercussions, opponents argue that a safe harbor infringes on investors’ rights and
could even encourage servicers to modify mortgages that are not in trouble if it benefits their own
self-interest. The Helping Families Save Their Homes Act of 2009 (P.L. 111-22) provided a safe
harbor for servicers who modified mortgages prior to December 31, 2012, in a manner consistent
with the Making Home Affordable program guidelines or the since-expired Hope for
Homeowners program. The legislation specified that the safe harbor does not protect servicers or
individuals from liability for any fraud committed in their handling of the mortgage or the
mortgage modification.
Volume of Delinquencies and Foreclosures
Another issue facing loan modification programs is the sheer number of delinquencies and
foreclosure proceedings underway. Lenders and servicers have a limited number of employees to
reach out to troubled borrowers and find solutions. 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. 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.
Servicer Incentives
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.
Servicers’ actions are governed by contracts with mortgage holders or investors that generally
require servicers to act in the best interests of the entity on whose behalf they service the
mortgages, although, as described above, such contracts may in some cases also include
restrictions on servicers’ abilities to modify loans. In addition to their contractual obligations,
servicers have an incentive to service mortgages in the best interest of investors because that is
one way that mortgage servicers ensure that they will attract continued business. However, some
have suggested that servicers’ compensation structures may provide incentives for servicers to
pursue foreclosure even when it is not in the best interest of the investor in the mortgage. For
example, servicers’ compensation structures may not provide an incentive to put in the extra work
that is necessary to modify a mortgage, and servicers may be able to charge more in fees or
recoup more expenses through a foreclosure than a modification. Programs such as HAMP
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provide financial payments to servicers to modify mortgages, but critics argue that these may not
be large enough to align servicers’ incentives with those of borrowers and investors.81 The Federal
Housing Finance Agency (FHFA) and HUD have announced a joint initiative to consider
alternative servicer compensation structures.82
For more information on the incentives facing mortgage servicers and previous legislative
proposals to implement national mortgage servicing standards, see CRS Report R42041, National
Mortgage Servicing Standards: Legislation in the 112th Congress, by Sean M. Hoskins.
Possibility of Re-default
Another major challenge associated with loan modification programs is the possibility that a
homeowner who receives a modification will nevertheless default on the loan again in the future.
This possibility might be of particular concern for lenders or investors if the home’s value is
falling, because in that case delaying an eventual foreclosure reduces the value that the mortgage
holder can recoup through a foreclosure sale. Data released quarterly by the Office of the
Comptroller of the Currency (OCC) track the re-default rates of modified mortgages. Data from
the second quarter of 2013 show that 17% of loans modified in the first quarter of 2012 were 30
or more days delinquent again three months after the modification, 25% were 30 or more days
delinquent six months after the modification, and nearly 31% were 30 or more days delinquent 12
months after the modification. The same data show that a smaller percentage of modified loans
were 60 or more days delinquent: 8% of loans were 60 or more days delinquent three months
after the modification, 14% were 60 or more days delinquent six months after the modification,
and 21% were 60 or more days delinquent 12 months after the modification.83 Earlier reports
from the OCC showed that mortgages modified in earlier quarters tended to have higher re-
default rates; the decrease in re-default rates for loans modified in more recent quarters may have
to do with an increased focus on modifications that reduce borrowers’ monthly payments.
The OCC has begun to include data in its quarterly report that show re-default rates according to
whether the loan modification increased monthly payments, decreased monthly payments, or left
monthly payments unchanged. The reports include such data for loans modified since the
beginning of 2008. The report covering the second quarter of 2013 shows that, for loans modified
in 2011, about 15% of loan modifications that resulted in monthly payments being reduced by
20% or more were 60 or more days delinquent twelve months after modification. This compares
to a re-default rate of 27% for loans where monthly payments were reduced by between 10% and
20%; 34% for loans where payments were reduced by less than 10%; 17% for loans where
payments remained unchanged; and 45% for loans where monthly payments increased. While
loan modifications that lower monthly payments do appear to perform better than modifications

81 For one discussion 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/reports/congress/2010/October2010_Quarterly_Report_to_Congress.pdf.
82 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.
83 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, Second Quarter 2013, pp. 31-32,
http://www.occ.gov/publications/publications-by-type/other-publications-reports/mortgage-metrics-2013/mortgage-
metrics-q2-2013.pdf.
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that increase monthly payments, a significant number of modified loans with lower monthly
payments still become delinquent again after the loan modification.84
The OCC also reports that HAMP modifications appear to perform somewhat better than other
types of modifications, possibly because of HAMP’s focus on reducing monthly mortgage
payments. For example, the OCC reports that about 10% of HAMP modifications completed in
the second quarter of 2011 were 60 or more days delinquent six months later, while about 22% of
other modifications from the same period were 60 or more days delinquent six months later. For
loans modified in the second quarter of 2012, 8% of HAMP modifications were 60 or more days
delinquent six months later, compared to nearly 18% of other modifications.85
Treasury’s own data on the performance of HAMP modifications also show somewhat lower
levels of re-default than are seen for other types of mortgage modifications to date. As of
September 2013, Treasury reported that 9% of permanent HAMP modifications were 60 or more
days delinquent six months after modification, 17% of HAMP modifications were 60 or more
days delinquent 12 months after modification, and 30% of HAMP modifications were 60 or more
days delinquent two years after the modification.86
Distorting Borrower Incentives
Another challenge is that loan modification programs may provide an incentive for borrowers to
intentionally miss payments or default on their mortgages in order to qualify for a loan
modification that provides more favorable mortgage terms. While many of the programs
described above specifically require that a borrower must not have intentionally missed payments
on his or her mortgage in order to qualify for the program, it can be difficult to prove a person’s
intention. Programs that are designed to reach out to distressed borrowers before they miss any
payments, as well as those who are already delinquent, may minimize the incentive for
homeowners to intentionally fall behind on their mortgages in order to receive help.
Fairness Issues
Opponents of some foreclosure prevention plans argue that it is not fair to help homeowners who
have fallen behind on their mortgages while homeowners who have been struggling to stay
current receive no help. Others argue that borrowers who got in over their heads, particularly if
they intentionally took out mortgages that they knew they could not afford, should face
consequences. Supporters of loan modification plans point out that many borrowers go into
foreclosure for reasons outside of their control, and that some troubled borrowers may have been
victims of deceptive, unfair, or fraudulent lending practices. Furthermore, some argue for
foreclosure prevention programs because foreclosures can create problems for other homeowners
in the neighborhood by dragging down property values or putting a strain on local governments.

84 Ibid., p. 38.
85 Ibid., p. 36.
86 U.S. Department of the Treasury, Making Home Affordable Program Servicer Performance Report Through
September 2013, p. 7, http://www.treasury.gov/initiatives/financial-stability/reports/Documents/
September%202013%20MHA%20Report%20Final.pdf.
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To address these concerns about fairness, some loan modification programs reach out to
borrowers who are struggling to make payments but are not yet delinquent on their mortgages.
Most programs also specifically exclude individuals who provided false information in order to
obtain a mortgage.
Precedent
Some opponents of government efforts to provide or encourage loan modifications argue that
changing the terms of a contract retroactively sets a troubling precedent for future mortgage
lending. These opponents argue that if lenders or investors believe that they could be forced to
change the terms of a mortgage in the future, they will be less likely to provide mortgage loans in
the first place or will only do so at higher interest rates to counter the perceived increase in the
risk of not being repaid in full. Most existing programs attempt to address this concern by
limiting the program’s scope. Often, these programs apply only to mortgages that originated
during a certain time frame, and end at a pre-determined date.

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Appendix A. Comparison of Recent Federal Foreclosure Prevention Initiatives

Table A-1. Comparison of Select Federal Foreclosure Prevention Programs
As of November 2013
Refinancing Programs
Modification Programs
Home Affordable
Hope for
Home Affordable
Modification
HAMP—
Homeowners
FHA Short
Refinance Program
Program (HAMP)—
Principal Reduction

(H4H)
Refinance Program
(HARP)a
Original
Alternativeb
Program Basics
Status
Created by P.L. 110-
Obama
Obama Administration
Obama Administration
Obama Administration
289.
Administration
initiative.
initiative using authority
initiative to modify
initiative using
under P.L. 110-343.c
HAMP.c
Modified by P.L. 111-
authority under P.L.
22.
110-343.c
Began on October 1,
Announced March 26,
Announced February
Announced February
Announced March 26,
2008.
2010; active since
2009; active since April
2009; active since March 2010; active since
September 7, 2010.
1, 2009.
4, 2009.
October 1, 2010.
Ended on September
Available until
Available until
Available until
Same as HAMP.
30, 2011.
December 31, 2014.
December 31, 2015.
December 31, 2015.
762 loans refinanced
2,293 loans had
2.9 million loans had
59,795 HAMP trial
14,626 trial PRA
through the program.
refinanced through
refinanced through
modifications and
modifications and
the program as of
HARP as of August
909,220 HAMP
104,771 permanent PRA
January 2013.
2013.
permanent
modifications were
modifications were
active as of September

active as of September
2013.d
2013.
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Refinancing Programs
Modification Programs
Home Affordable
Hope for
Home Affordable
Modification
HAMP—
Homeowners
FHA Short
Refinance Program
Program (HAMP)—
Principal Reduction

(H4H)
Refinance Program
(HARP)a
Original
Alternativeb
Basic Premise
Allowed certain
Allows certain
Allows certain
Provides financial
Expansion of HAMP to
homeowners who
homeowners who are
homeowners who are
incentives to servicers
facilitate principal
owed more than their
current on their
current on their
and investors to modify
reductions on eligible
homes were worth to
mortgages, but owe
mortgages, but owe
borrowers’ mortgages
mortgages.
refinance into new,
more than their
over 80% of what their
so that monthly
FHA-insured
homes are worth, to
homes are worth, and
mortgage payments are
mortgages.
refinance into new,
whose mortgages are
no more than 31% of
FHA-insured
owned or guaranteed by gross monthly income.
mortgages.
Fannie Mae or Freddie
Mac, to refinance into
new, non-FHA insured
mortgages.
Reduced principal
Reduces principal
Does not reduce
Principal reduction is
Requires participating
balance on first
balance on the first
principal.
allowed at servicer’s
HAMP servicers to
mortgage; maximum
mortgage to no more
discretion, but not
consider reducing
loan-to-value (LTV)
than 97.75% of the
required or specifically
principal for eligible
ratio of new loan
home’s value. The first
incentivized.
borrowers who owe
depended on
mortgage must be
over 115% of the value
borrower’s
reduced by at least
of their home.
circumstances.
10%.
Provides incentives to
lenders/investors
specifically for reducing
principal.
Second liens had to be
Second liens are
Second liens are allowed Second liens are allowed Increases incentive
extinguished.
allowed to remain;
to remain; they must be
to remain; they must be
payments available
they must be re-
re-subordinated.
re-subordinated. The
through the HAMP
subordinated, and
Second Lien
Second Lien
total mortgage debt
Modification Program
Modification Program.
after the refinance
provides incentives for
may not exceed 115%
modification or
of the home’s value.
extinguishment of
second liens.
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Refinancing Programs
Modification Programs
Home Affordable
Hope for
Home Affordable
Modification
HAMP—
Homeowners
FHA Short
Refinance Program
Program (HAMP)—
Principal Reduction

(H4H)
Refinance Program
(HARP)a
Original
Alternativeb
Program Details
Program Details
Borrower refinanced
Borrower refinances
Borrower can refinance
Servicers receive
Requires servicers who
into FHA-insured
into FHA-insured
into a new, non-FHA
incentives to reduce
are participating in
mortgage with a lower
mortgage for no more insured loan. The
eligible borrowers’
HAMP to consider
principal mortgage
than 97.75% of home’s refinanced loan will not
mortgage payments to
principal reduction for
amount. Original
value. Original
reduce the principal
38% of gross monthly
borrowers who owe at
mortgage holder
mortgage holder
balance owed, but it can
income. Servicer can
least 115% of the value
absorbed loss resulting
absorbs loss resulting
reduce the interest rate
reduce payments
of their homes.
from write-down in
from write-down in
or move the borrower
through interest rate
mortgage value.
mortgage value.
from an adjustable-rate
reductions, term
to a fixed-rate
extensions, and principal
mortgage, thereby
forbearance, and may
lowering monthly
reduce principal at their
payments or preventing
own discretion.
a payment increase.
Government shares half

the cost of further
reducing payments to
31% of monthly income.
New mortgage amount New mortgage
New mortgage, like the
The outstanding
Same as HAMP.
could not exceed
amount may not
original mortgage,
principal balance on the
$550,440 (for a one-
exceed FHA
cannot exceed Fannie
existing mortgage
unit home).
maximum loan limits.
Mae/Freddie Mac
cannot exceed $729,750
conforming loan limits.
(for a one-unit home).
New mortgage balance
may be higher due to
capitalization of certain
allowed fees, such as
escrow advances.
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Refinancing Programs
Modification Programs
Home Affordable
Hope for
Home Affordable
Modification
HAMP—
Homeowners
FHA Short
Refinance Program
Program (HAMP)—
Principal Reduction

(H4H)
Refinance Program
(HARP)a
Original
Alternativeb
New mortgage had to
New total monthly
The new mortgage must The new mortgage
Same as HAMP.
result in a lower
mortgage payment
benefit the homeowner
payment must not
monthly mortgage
(including second
through a lower interest exceed 31% of gross
If principal is reduced,
payment than the
mortgage payments)
rate or a more stable
monthly income.
the amount of principal
original loan, but there
must be no higher
mortgage product (for
reduction will initially be
was no minimum
than approximately
example, a fixed-rate
Borrowers must
treated as principal
reduction in payment.
31% of income.
loan instead of an
successfully complete a
forbearance, and then
adjustable-rate loan).
three-month trial period will be forgiven in three
Maximum loan-to-value New mortgage must
before the modification
equal parts over three
ratios and total debt-
result in a reduction
Borrowers without
becomes permanent.
years as long as the
to-income ratios
of mortgage debt of at mortgage insurance (MI)
borrower remains
depended on the
least 10% of the
on the original loan are

current.
borrower’s
amount of the original
not required to get MI
delinquency status and
outstanding principal
on the new loan.
credit score.e
balance, and must not
exceed 97.75% of the
home’s value.
Total household debt
may not be more than
approximately 50% in
most cases.
Borrower paid upfront
Borrower pays
If the mortgage already
Mortgages may or may
Same as HAMP.
and annual FHA
upfront and annual
had MI, that MI should
not have MI.
mortgage insurance
FHA mortgage
be transferred to the
premiums.f
insurance premiums.
new loan.
Borrower pays “exit
premium” when the
home is sold. g
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Refinancing Programs
Modification Programs
Home Affordable
Hope for
Home Affordable
Modification
HAMP—
Homeowners
FHA Short
Refinance Program
Program (HAMP)—
Principal Reduction

(H4H)
Refinance Program
(HARP)a
Original
Alternativeb
Second lien-holders
Allows for existence
Second liens are not
Second Lien
Second Lien
had to release their
of a second lien up to
explicitly addressed.
Modification Program
Modification Program
liens.
a total combined
provides incentives for
still applies; incentives
mortgage debt of
the modification or
will be increased.
115% of home’s value.
extinguishment of
If the second lien is
Second Liens.
not extinguished, the
second lien-holder
must agree to re-
subordinate the lien.
Incentives for
HUD had authority to
No incentive
No incentive payments.
Incentives to servicers
Incentives offered to
Lenders/Servicers/Investors
provide incentive
payments related to
for making
lenders/investors based
payments to mortgage
first lien mortgage.
modifications.
on the dollar amount of
servicers and
“Pay-for-success”
principal reduced.
originators of new
incentives to borrowers
H4H mortgages.

and servicers if

borrowers remain
current.
Incentives to
lenders/investors in the
form of half the cost of
reducing the monthly
mortgage payment from
38% to 31% of gross
monthly income.
Incentive payments
Incentives will be paid
No incentive payments.
Incentives are offered
Incentives will be
could be made to
to second lien-holders
for second lien-holders
increased for second
second lien-holders to
to write down the
to modify or release
lien-holders to write
facilitate the
balance of the second
their liens through the
down the balance of the
extinguishment of the
lien.
Second Lien
second lien.
lien.
Modification Program.
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Refinancing Programs
Modification Programs
Home Affordable
Hope for
Home Affordable
Modification
HAMP—
Homeowners
FHA Short
Refinance Program
Program (HAMP)—
Principal Reduction

(H4H)
Refinance Program
(HARP)a
Original
Alternativeb
Performance of H4H
Performance of short
No additional
Additional incentives
Additional HAMP
mortgages were not
refinances will not be
incentives.
are available for
incentives continue to
included in certain
included in certain
investors, borrowers,
apply.
FHA evaluations of
FHA evaluations of
lenders, and servicers
lenders’ performance.
lenders’ performance.
for certain other
modification or
foreclosure prevention
activities.
Eligibility Requirements
Borrower/Mortgage Eligibility
Borrower could have
Borrower must have a Borrower must have a
Borrower must have a
Same as HAMP.
Requirements
an FHA-insured or
non-FHA-insured
mortgage that is owned
mortgage serviced by a
non-FHA-insured
mortgage.
or guaranteed by Fannie
participating servicer.i
mortgage.h
Mae or Freddie Mac.
Borrower could be
Borrower must be
Borrower must be
Borrower may be
Same as HAMP.
current or delinquent
current on his/her
current on his/her
current (if default is
on his/her mortgage.
mortgage.
mortgage.
reasonably foreseeable)
or delinquent on his/
her mortgage.
Borrower must have
No hardship
No hardship
Borrower must have
Same as HAMP.
experienced a financial
requirement.
requirement.
experienced a financial
hardship.
hardship.
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Refinancing Programs
Modification Programs
Home Affordable
Hope for
Home Affordable
Modification
HAMP—
Homeowners
FHA Short
Refinance Program
Program (HAMP)—
Principal Reduction

(H4H)
Refinance Program
(HARP)a
Original
Alternativeb
Borrower’s total
No minimum monthly
Borrower owes more
Borrower’s total
Same as HAMP.
monthly mortgage
mortgage payment
than 80% of the value of
monthly mortgage
payment must have
specified.
the home.j
payment must be higher
Borrower must owe at
been higher than 31%
than 31% of gross
least 115% of the value
of gross monthly
monthly income.
of the home before
income.
servicers are required
Borrower must not
to consider principal
Borrower’s net worth
have sufficient liquid
reductions.
could not be greater
assets to make monthly
than $1 million.
mortgage payments.
The unpaid principal
balance must be no
higher than $729,750
(for a one-unit
property). This is the
Fannie Mae/Freddie Mac
conforming loan limit
for high-cost areas.
Mortgage must have
No mortgage
Mortgage must have a
Mortgage must have
Same as HAMP.
been originated on or
origination criteria
closing date on or
been originated on or
before January 1, 2008.
specified.
before May 31, 2009.k
before January 1, 2009.

Property Eligibility
Home must have been
Home must be the
Home not required to
Home must be the
Same as HAMP.
Requirements
the borrower’s
borrower’s primary
be primary residence.
borrower’s primary
primary residence.
residence.
residence or, in some
cases, occupied by a
tenant.l
Property must have
Property must be
Property must be single-
Property must be single-
Same as HAMP.
been single-family (1-4
single-family (1-4 unit)
family (1-4 unit) home.
family (1-4 unit) home.
unit) home.m
home.
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Refinancing Programs
Modification Programs
Home Affordable
Hope for
Home Affordable
Modification
HAMP—
Homeowners
FHA Short
Refinance Program
Program (HAMP)—
Principal Reduction

(H4H)
Refinance Program
(HARP)a
Original
Alternativeb
Lender/Servicer Participation
Mortgage holders
Mortgage holders
Fannie Mae- and Freddie Servicers who have
Servicers who have
agreed to accept
agree to accept
Mac-approved lenders
signed HAMP
signed HAMP
proceeds of new loan
proceeds of new loan
are authorized to
participation
participation agreements
as payment in full on
as payment in full on
participate.
agreements are
are required to
the original loan, and
the original loan, and
required to participate;
participate in the
FHA-approved lenders
FHA-approved
signing a participation
program changes.
agreed to make new
lenders agree to make
agreement is voluntary.
H4H loans, on a case-
new FHA-insured

by-case basis.
loans, on a case-by-
case basis.
Sources: FHA Mortgagee Letter 2009-43; FHA Mortgagee Letter 2010-23; Fact Sheet on FHA Program Adjustments to Support Refinancings for Underwater
Homeowners; Fact Sheet on Making Home Affordable Program Enhancements to Offer More Help for Homeowners; FHA Outlook, February 2010; FHFA Foreclosure
Prevention and Refinance Report, November 2009/January 2010; Making Home Affordable Program: Servicer Performance Reports; Home Affordable Modification Program
Guidelines; HAMP Supplemental Directive 09-01; Fannie Mae and Freddie Mac HARP guidance.
a. Fannie Mae and Freddie Mac have each issued their own specific guidelines for HARP. While these guidelines are generally broadly similar, they differ from one another
in some respects.
b. Treasury’s detailed guidance on HAMP, including the Principal Reduction Alternative and other related programs, can be found in the Making Home Affordable
handbook, available at https://www.hmpadmin.com/portal/index.jsp.
c. While HAMP (and its associated programs) and the FHA Short Refinance Program were created as Obama Administration initiatives, the funding for the program
comes from the Troubled Asset Relief Program (TARP). TARP was authorized in P.L. 110-343.
d. An additional 38,283 active HAMP modifications with principal reductions (3,580 active trial modifications and 34,703 active permanent modifications) have been done
outside of the PRA.
e. FHA Mortgagee Letter 2009-43. The maximum allowable LTV changed after the program was first created.
f.
Using statutory authority provided in P.L. 111-22, HUD reduced the mortgage insurance premiums for H4H from their original levels.
g. Borrowers originally had to agree to share a portion of both their equity in the home and any house price appreciation with HUD when the home was eventually sold.
P.L. 111-22 provided the authority to change these requirements. The exit premium is now a payment of a portion of the initial equity in the home after the H4H
refinance.
h. FHA Mortgagee Letter 2009-43. When the program first began, only non-FHA-insured loans were eligible.
i.
FHA-insured mortgages are eligible for FHA-HAMP, an FHA loss mitigation activity that shares many of the same features as HAMP. VA or USDA mortgages might be
eligible for similar programs, subject to the relevant agency’s guidance.
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Preserving Homeownership: Foreclosure Prevention Initiatives

j.
Originally, HARP allowed homeowners to refinance if they owed up to 105% of the value of their homes. On July 1, 2009, the Federal Housing Finance Agency (FHFA)
announced that it would increase the maximum loan-to-value ratio to 125%. In October 2011, FHFA announced that it would remove the LTV cap entirely.
k. Originally, to be eligible for HARP, the original mortgage loan must have been delivered to Fannie Mae or Freddie Mac on or before May 31, 2009. In 2013, the
requirement was changed to specify that the closing date on the original mortgage must have been on or before May 31, 2009.
l.
Originally, to be eligible for HAMP, the home had to be the borrower’s primary residence. Under program changes announced in January 2012, some properties that
are occupied by tenants, or that are vacant but which the borrower intends to rent, might qualify for HAMP.
m. FHA Mortgagee Letter 2009-43. When the program first began, only 1-unit properties were eligible.
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Appendix B. Recently Ended Foreclosure
Prevention Initiatives
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 describes some of these initiatives, beginning with those that most recently ended.
The programs discussed in this Appendix include the Emergency Homeowners Loan Program
(which ended September 30, 2011), Hope for Homeowners (which ended September 30, 2011),
FHASecure (which ended December 31, 2008), 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. While these initiatives are no longer active; 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) included up to
$1 billion for HUD to use to administer a program to provide short-term loans to certain mortgage
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
target 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).
HUD termed this program the Emergency Homeowners Loan Program (EHLP).87 By statute,
HUD was not able to enter into new loan agreements under EHLP after September 30, 2011.88
Table B-1shows the amounts that HUD designated for the Emergency Homeowners Loan
Program for each state that was eligible for funding.
Table B-1. Emergency Homeowners Loan Program Allocations to States
$ in millions
State Allocation State Allocation
Alaska $3.9
New
Hampshire
$12.7
Arkansas $17.7
New
Mexico $10.7
Colorado $41.3
New
York $111.6
Connecticut $32.9
North
Dakota $1.3

87 Details on the program can be found on HUD’s website at http://www.hud.gov/offices/hsg/sfh/hcc/ehlp/
ehlphome.cfm.
88 In the 112th 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.)
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State Allocation State Allocation
Delaware $6.0
Oklahoma $15.6
Hawaii $6.3
Pennsylvania
$105.8
Idaho $13.3
Puerto
Rico
$14.7
Iowa $17.4
South
Dakota
$2.1
Kansas $17.7
Texas $135.4
Louisiana $16.7
Utah
$16.6
Maine $10.4
Vermont $4.8
Maryland $40.0
Virginia
$46.6
Massachusetts $61.0
Washington
$56.3
Minnesota $55.8
West
Virginia $8.3
Missouri $49.0
Wisconsin $51.5
Montana $5.7
Wyoming $2.3
Nebraska $8.3


Total


$1,000.0
Source: 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.
The Emergency Homeowners Loan Program was administered through two different approaches.
Under the first approach, state housing finance agencies that operate programs that were deemed
to be “substantially similar” to the Emergency Homeowners Loan Program could use EHLP
funds for their existing programs. On April 1, 2011, HUD announced that it had deemed
programs in five states (Connecticut, Delaware, Idaho, Maryland, and Pennsylvania) to be
substantially similar to the EHLP and had approved those states’ EHLP allocations to be used for
their state programs. The EHLP programs in the remaining states used the second approach to
administer the program.
Under the second approach, housing counseling organizations that are part of the NeighborWorks
network89 took applications for the program and performed certain other administrative and
outreach functions (HUD retained responsibility for program monitoring and compliance, and for
managing the note associated with the Emergency Homeowners Loan Program loan). Borrowers
were able to begin applying for the program using this approach on June 20, 2011. To apply,
borrowers submitted a pre-application to a participating housing counseling agency.90 After all
pre-applications were received, qualified applicants were invited to submit a complete
application. If there were more qualified pre-applications than funds available, then borrowers
were to be chosen by lottery to submit full applications. Borrowers originally had to submit pre-

89 NeighborWorks America is a HUD-approved housing counseling intermediary with a nationwide network of housing
counseling affiliates. For more information on NeighborWorks in general, see the organization’s webpage at
http://www.nw.org/network/aboutUs/aboutUs.asp. For more information on NeighborWorks’s foreclosure prevention
activities, see “Foreclosure Counseling Funding for NeighborWorks America” later in this report.
90 Information on applying for the EHLP can be found at http://nw.org/network/foreclosure/nfmcp/ehlpconsumers.asp.
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applications by July 22, 2011, to be considered for the program, although that deadline was later
extended to September 15, 2011.91
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.
The loans were to be used to pay arrearages on the mortgage as well as to assist the borrower in
making mortgage payments for up to 24 months going forward. An individual borrower was
eligible to receive up to a maximum of $50,000. 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 loan amount has been reached; (2) the homeowner
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.
Loans made through the program were five-year, zero-interest, non-recourse loans secured by
junior liens on the property. The loans have declining balances; the 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 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 if one of the following events occurs: (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.

91 U.S. Department of Housing and Urban Development, “HUD and NeighborWorks America Accepting Additional
Applications for Emergency Homeowners’ Loan Program,” press release, August 29, 2011, http://portal.hud.gov/
hudportal/HUD?src=/press/press_releases_media_advisories/2011/HUDNo.11-177.
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To date, 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 could be assisted, with only about half of the funding allocated to the program
ultimately being spent.92 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 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. 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.93
In order to be eligible for the program, borrowers were required to meet the following
requirements:
• The borrower must have had a mortgage that 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 home had to be reappraised by an FHA-approved home appraiser in order to determine its
current value, and the lender absorbed whatever loss resulted from the write-down. The new
mortgage was a 30-year fixed-rate mortgage with no prepayment penalties, and could not exceed
$550,440. Homeowners paid an upfront mortgage insurance premium of 2% of the loan balance
and an annual mortgage insurance premium of 0.75% of the loan balance, and any second lien-
holders were required to release their liens. When the homeowner sells or refinances the home, he

92 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.
93 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.
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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.94
Under the original terms of the program, the lender was required to write the loan down to 90%
of the home’s currently appraised value. The upfront and annual mortgage insurance premiums
were originally set at 3% and 1.5%, respectively, and second lien-holders were compensated for
releasing their liens with a share of any future profit from the home’s eventual sale rather than an
upfront payment. Furthermore, homeowners were originally required to share a portion of both
their equity and any appreciation in the home’s value with HUD when the home was eventually
sold or refinanced.
On November 19, 2008, HUD announced three changes to Hope for Homeowners in order to
simplify the program and encourage participation. The authority to make these changes was
granted in the Emergency Economic Stabilization Act of 2008 (P.L. 110-343).95 These changes
did the following: (1) increased the maximum loan-to-value ratio of the new loan to 96.5% of the
home’s currently appraised value, instead of the original 90%, in order to minimize losses to
lenders; (2) allowed lenders to increase the term of the mortgage from 30 to 40 years in order to
lower borrowers’ monthly payments; and (3) offered an immediate payment to second lien-
holders, instead of a share in future profits, in return for their agreement to relinquish the lien.
Congress authorized further changes to the Hope for Homeowners program in the Helping
Families Save Their Homes Act of 2009 (P.L. 111-22), which was signed into law by President
Obama on May 20, 2009. P.L. 111-22 changed the Hope for Homeowners program by allowing
reductions in both the upfront and annual mortgage insurance premiums that borrowers pay;
allowing HUD to offer servicers and H4H mortgage originators incentive payments for each loan
that was successfully refinanced using Hope for Homeowners; and allowing HUD to reduce its
share in any future home price appreciation (and giving HUD the authority to share its stake in
the home’s future appreciation with the original lender or a second lien-holder). P.L. 111-22 also
placed the Hope for Homeowners program under the control of the Secretary of HUD and limited
eligibility for the program to homeowners whose net worth did not exceed a certain threshold.
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; set the maximum loan-to-
value ratio of the new loan at either 96.5% or 90%, based on the borrower’s mortgage debt- and
total debt-to-income ratios and credit score; offered immediate payments to certain second lien-
holders to release their liens; eliminated the shared appreciation feature; and replaced the shared
equity feature with the exit premium.96

94 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.
95 The decision to act on the authority granted in P.L. 110-343 and make these changes was ultimately made by the
Board of Hope for Homeowners, which included the Secretary of HUD and the Secretary of the Treasury, among
others. As described in the text, P.L. 111-22 placed the program under the control of the Secretary of HUD; the Board
then took on an advisory role.
96 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.
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The Obama Administration issued guidance for servicers on using Hope for Homeowners
together with the Making Home Affordable program. This guidance required servicers who are
participating in the Making Home Affordable program to screen borrowers for eligibility for
Hope for Homeowners and to use that program for qualified borrowers prior to H4H’s expiration.
The Administration’s guidance also offered incentive payments to servicers who used Hope for
Homeowners, and to lenders who originated new loans under the program.
The Congressional Budget Office originally estimated that up to 400,000 homeowners could be
helped to avoid foreclosure over the life of H4H.97 In total, about 760 borrowers refinanced
through the program.98 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 temporary 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.99 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:
• 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. (Some
borrowers with a minimum amount of equity in their homes could still be eligible
for the program even if they had missed payments 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, and borrowers had to meet the
following revised eligibility requirements:
• The borrower became delinquent on his or her non-FHA ARM because of an
interest rate reset or another extenuating circumstance, and had sufficient income
to make monthly payments on the new FHA-insured loan.

97 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.
98 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.
99 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.
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• The borrower had no more than two payments that were 30 days late, or one
payment that was 60 days late, in the 12 months preceding the interest rate reset
or other extenuating circumstance.
• If the loan-to-value ratio on the FHA-insured mortgage was no higher than 90%,
the borrower may have had no more than three payments that were 30 days late,
or one payment that was 90 days late, prior to the interest rate reset or other
extenuating circumstance.
• Borrowers with interest-only ARMs or option ARMs must have been delinquent
due to an interest rate reset only (and not other extenuating circumstances), and
must have been current on their mortgages prior to the reset; the revised
eligibility criteria did not apply to these borrowers.
• 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).
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.100 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.101 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.
IndyMac Loan Modifications
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.
The IndyMac program offered systematic loan modifications to qualified borrowers in financial
trouble. The systematic approach means that all loan modifications follow the same basic formula
to identify qualified borrowers and reduce their monthly payments in a uniform way. Such an
approach is meant to allow more modifications to happen more quickly than if each loan was
modified on a case-by-case basis.

100 HUD Mortgagee Letter 08-41, “Termination of FHASecure,” December 19, 2008, available at http://www.hud.gov/
offices/adm/hudclips/letters/mortgagee/2008ml.cfm.
101 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.
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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.
FDIC Chairman Sheila Bair estimated that about 13,000 loans were modified under this program
while IndyMac was under the FDIC’s conservatorship.102 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.103
Currently, OneWest is a participating servicer in HAMP, described earlier in this report.
Fannie Mae and Freddie Mac Streamlined Modification Plan
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 that Fannie, Freddie, and certain private mortgage lenders and servicers
planned to undertake.104 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 has
since been replaced by the Home Affordable Modification Program, 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:
• 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.

102 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.
103 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.
104 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. The HOPE NOW Alliance is described in detail in an earlier section of this report.
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• 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. Borrowers who qualified for the program had to provide income information that was
current within the last 90 days to the mortgage servicer. Based on this updated income
information, 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% after the first three steps were taken, servicers could offer principal forbearance. The
amount of the principal forbearance would not accrue interest and was non-amortizing, but would
result in a balloon payment when the loan was paid off or the home was sold.
Negative amortization was not allowed under the SMP, nor were principal forgiveness or
principal write-downs. In order 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.105 However, it is unclear how many of these loan
modifications were done specifically through the SMP.
Federal Reserve Homeownership Preservation Policy
On January 27, 2009, the Federal Reserve announced the Homeownership Preservation Policy.106
This plan provided guidelines, subject to Section 110 of the Emergency Economic Stabilization
Act of 2008 (EESA), to prevent foreclosures on any residential mortgages that the Federal
Reserve Banks might come to hold, own, or control, such as mortgage assets that they may
receive as collateral for lending to troubled banks.

105 Federal Housing Finance Agency, Foreclosure Prevention Report: April 2009, July 15, 2009, available at
http://www.fhfa.gov/webfiles/14588/April_Foreclosure_Prevention71509F.pdf.
106 Details of the Homeownership Preservation Policy can be found on the Federal Reserve’s website at
http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090130a1.pdf.
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In order to be eligible for a loan modification under the Homeownership Preservation Policy, a
borrower would have to be at least 60 days delinquent (although the Fed could make exceptions
for households experiencing circumstances that were likely to result in their becoming at least 60
days delinquent). If the expected net present value of a loan modification was greater than the
expected net present value of foreclosure, the Federal Reserve Banks could modify mortgages by
reducing the interest rate, extending the loan term, offering principal forbearance or principal
forgiveness, or changing other loan terms. The modified mortgage would have to have a fixed
interest rate, a term of no more than 40 years, and result in a mortgage debt-to-income ratio of no
more than 38% for the borrower. The Fed must also have a reasonable expectation that the
borrower would be able to repay the modified loan. If the borrower’s mortgage debt was greater
than 125% of the current estimated value of the property, the Fed would prioritize principal
reductions over other types of loan modifications where possible.
This policy applied to whole mortgages that the Federal Reserve Banks held, owned, or
controlled. In the case of securitized mortgages in which the Fed had an interest, the Fed would
encourage servicers to undertake similar loan modifications and support their efforts to do so.


Author Contact Information

Katie Jones

Analyst in Housing Policy
kmjones@crs.loc.gov, 7-4162


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