HUD launches new homeowner program

HUD launched a program Wednesday designed to help homeowners at risk of foreclosure stay in their homes and help banks stem the losses associated with foreclosing on homeowners. The "Hope for Homeowners" program was part of a housing reform bill enacted in July.

The law calls for the program to begin Wednesday, and HUD Secretary Steve Preston said he wanted the program up and running as soon as possible. "We moved quickly," Preston said at a news conference. The program comes as housing foreclosures in August rose 12 percent over July and 27 percent above August 2007, according to RealtyTrac, a real estate database that specializes in foreclosed properties.

The program would be expanded under a financial rescue package the Senate is expected to approve tonight. If approved, the bill, which now includes tax breaks for businesses and other sweeteners, would then go back to the House, where leaders must decide whether to accept it or change it and send it back to the Senate. On Monday, the House rejected the package, which would allow the Treasury to buy $700 billion in troubled mortgage securities in an effort to mitigate the credit crunch.

"Clearly, we are faced with significant decisions regarding how we begin to right our financial system following the devastating effects of the mortgage and housing markets," Preston said. "I cannot emphasize enough how the decision we make this week will affect every American, whether it be their ability to get a mortgage, their ability to afford retirement or their ability to get a job."

Funding for the program comes from the issuance of up to $300 billion over three years of Treasury bonds, known as Hope Bonds. HUD officials overseeing the program believe they have enough funds for the currently envisioned program and that they have the ability to seek more funds if needed for an expanded program. "We feel good about the funding that we have," Preston said.

The program is available to homeowners that meet certain criteria. Applicants must have a mortgage that was originated before Jan. 1, and cannot afford their current loan. They also need to have made a minimum of six full payments on their existing first mortgage. Those owning a second home may not qualify. Homeowners in the program are eligible to refinance their mortgage into an FHA-insured 30-year fixed-rate mortgage that they could afford. The program is voluntary for borrowers who must be willing to write down the outstanding mortgage principal balances to 90 percent of the new value of the property. In many cases, the reductions in principal will cost lenders less than the losses associated with foreclosure, HUD said.