The government’s new “Second Lien Program” will work together with a separate program which modified homeowners’ first liens called the Home Affordable Modification Program.
When the first lien program is initiated, servicers participating in the second program will automatically reduce payments on the second lien according to a pre-set protocol, the Treasury said.
Servicers will also have the option of extinguishing a second lien in return for a lump sum payment under a pre-set formula determined by the Treasury.
The new changes will also require servicers to determine the eligibility of their customers for a separate government refinancing program called Hope for Homeowners. The Hope for Homeowners program requires servicers to accept a payoff below the current market value of the home, allowing the borrower to refinance into a new Federal Housing Administration guaranteed loan.
Servicers will receive “pay-for-success” payments for refinancing homes under the government’s programs. Servicers will receive $1,000 for each year up to three years as long as the borrower can stay in the program. Homeowners at risk of default are incentivized with $1,500 to modify their loans while they are current in their payments, while servicers will get a $500 incentive. Homeowners will receive $1,000 each year for five years if they stay current with their payments.