Media & Resources

FOR IMMEDIATE RELEASE                                                  Contact:  Jesse Van Tol (202) 464-2709
March 13, 2008                                                                               jvantol@ncrc.org  

• HELP Now creates a three-year program, not a new agency. The Treasury
Department would purchase loans and/or loan pools held in securitized pools at a steep discount. Discounting the purchase of loan pools would strike a balance between assisting homeowners and ensuring that lenders, servicers, and securitizers are not rewarded for financing and servicing predatory and price-inflated loans. Removing loans from pools will avoid any threat of litigation against servicers, a commonly cited reason that loans are not being modified at a greater pace.
 
• The discounted loan price should be sufficient to writedown the loan balance of hundreds of thousands of loans such that they can be permanently restructured to ensure long-term sustainability. Loans that remain underwater after applying the discounted purchase price would need to be refinanced. 
 
• An immediate writedown of the principal balance of purchased mortgages would occur. In some cases, a soft second, constituting the difference between the discounted price and the current market value, would be attached to the loan and recaptured upon resale of the property. A simplified example:
 

• Outstanding balance on a mortgage is $300,000, but the loan is in a negative equity position.
• The government purchases the loan at auction for $200,000, a 30% discount.
• Outstanding mortgage now equals $200,000. If the current market value is less than this amount, say $180,000, the difference ($20,000) is attached to the primary lien as a “soft-second.” This amount would be recaptured upon resale of the asset.

• The plan is different from other plans offered in several ways:
 

• Solving the problem through widespread loans modifications avoids the technical challenges associated with refinancing all loans.
• HELP Now does not require refinancing with FHA, so it does not place the government on the hook for 100% of the risk. Requires a soft second for remaining difference between
  discounted purchase price and the current market value of the loan. This is recaptured upon sale of the property, ensuring the Federal government is not stuck with the bill.
• HELP Now offers assistance to families that have lost their homes to foreclosure. 

• Significant loan modifications (such as a principal and/or interest rate reduction) can be accomplished in a streamlined fashion and may avoid the need to refinance. Refinancing is a more complicated, lengthy process. 
 
•  Many proposals significantly expand the government’s exposure to risk. Under some proposals, FHA would insure 100% of the refinance loans made under the proposal, dramatically expanding the loan volume for this agency. This would leave the Federal Government on the hook for 100% of outstanding subprime mortgages valued at potentially more than 1 trillion dollars. If pay option-ARMs and prime products are considered, the total obligation could extend to several hundred billion dollars worth of loans

• Although this program would result in losses for investors by allowing refinancing at the current value of home, the “negative equity certificate” demands homeowners pay the full outstanding mortgage balances, thereby codifying unfair and deceptive terms and conditions [such as abusive appraisals, prepayment penalties and others] that created bloated loan amounts that currently exist.
 
• The “negative equity certificate” amounts to a prepayment penalty that restricts a borrowers ability to refinance. A borrower would first have to pay the full outstanding balance on the mortgage and then accumulate an additional 5-10% equity to be able to refinance the loan.
 
•  Borrowers in the program would be required to pay as much as 1% more to access FHA relative to conventional prime rates.

• Waiting to approve, fund, staff and create new programs for an agency could take more than a year to accomplish. The immediacy of the foreclosure crisis does not allow the luxury of time. By avoiding the added time that would be required to create and staff a new agency, NCRC’s Homeowners Emergency Loan Program
(HELP Now) could potentially become operational immediately.  

 Download the pdf

Download Step by Step Explanation of HELP Now
Download HELP Now Graph