Making Homes Affordable
CalSTRS participates in the federal government’s Making Homes Affordable programs which are designed to help struggling homeowners prevent avoidable foreclosures. Freddie Mac serves as the U.S. Department of the Treasury’s compliance agent for MHA and Fannie Mae is the programs’ administrator. In this section, we touch upon the two most significant pieces of MHA, both of which are scheduled to expire at the end of 2015.
The first MHA program is the Home Affordable Modification Program. HAMP assists eligible borrowers lower their monthly payments in order to make them more affordable and sustainable through a uniform modification process.
HAMP is targeted to borrowers with a financial hardship that are either delinquent or in danger of falling behind on their mortgage payments and who obtained their mortgage on or before January 1, 2009. Borrowers seeking a HAMP modification must be employed and have sufficient documented income to support a modified payment.
As of December 31, 2013, 57 first lien mortgages originated through the Home Loan Program have received permanent HAMP modifications. Borrowers approved for HAMP modifications are eligible to have the second lien modified under HAMP’s “2MP” component once it exits the deferral period and becomes fully amortizing. There have been sixteen 2MP modifications as of the end of 2013, and each mirrors the terms of the associated first lien HAMP modification.
Another major program included in MHA is the Home Affordable Refinance Program. HARP is for borrowers who are current on their mortgages with a good payment history during the past twelve months. A significant qualifier for HARP is that the mortgage must have been purchased by Fannie Mae or Freddie Mac on or before May 31, 2009. Whenever a HARP refinance involves a second lien, the second lien holder must agree to resubordinate their position to a new first lien. Doing so entails CalSTRS granting an exception to a term established in the second mortgage note which requires the second mortgage be paid in full immediately, should the first lien be refinanced.
Our decision to grant this exception for HARP is predicated on the refinance being done via the existing servicer. This affords continued performance reporting should the new first lien become delinquent in the future; whereas if the HARP were to be done via other lenders, there would be no mechanism to trigger a devaluation on our second liens should their associated HARP first lien fall delinquent. CalSTRS has no direct financial interest in the new first lien created via HARP and, consequentially, no influence over the rate offered.
Refinancing information, including HARP refinancing, is addressed in the Home Loan Program’s first Frequently Asked Question on the CalSTRS website. Although many HARP eligible borrowers have already refinanced during this period of low mortgage interest rates, we still continue to see new HARP activity each month. As of December 31, 2013, there have been 602 first lien mortgages originated through the home loan program which have been refinanced via HARP.