HAMP Redux: Changes in Fed's Foreclosure Prevention Program

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By Les Christie, CNNMoney

NEW YORK -- The Obama administration is taking another swing at improving its main foreclosure prevention program.

The administration said it was expanding eligibility for its Home Affordable Modification Program, known as HAMP, to borrowers with higher debt loads and tripling the incentives it pays banks that reduce principal on loans.

The administration also said it would offer incentives to Fannie Mae and Freddie Mac to reduce principal on loans. Previously, the government had only offered incentives to private lenders and banks. The program was also extended to December 2013. It was initially set to expire at the end of this year.

The changes were announced in a joint press conference held by Housing and Urban Development Secretary Shaun Donovan, Assistant Treasury Secretary Tim Massad, and White House National Economic Council Director Gene Sperling on Friday afternoon.

Originally designed to help some 4 million mortgage borrowers when it was first introduced in February, 2009, HAMP has helped fewer than 1 million homeowners.

With these changes, HAMP is turning into an "all of the above strategy to help responsible homeowners lower their costs and stay in their homes," said Gene Sperling, the Director of the National Economic Council, who also took part in the press conference.

Here's a rundown of the new changes:

Expansion of eligibility: HAMP was designed to bring the debt ratio of mortgage borrowers down to 31 percent of their incomes. Those whose mortgage payments were already below that level had been ineligible for a modification. They may qualify now. The new guidelines will allow for a more flexible approach that takes other debt into account when calculating debt-to-income ratios.
Extension of eligibility to owners of rentals properties: The old HAMP rules applied solely to owner-occupied homes but now those who own rental properties may also qualify for a HAMP modification.
Triple balance-reduction incentives: The new HAMP will pay between 18 cents and 63 cents for every dollar that lenders take off the mortgage principal, up from between 6 cents and 21 cents.
Pay Fannie and Freddie the same incentives: Currently, Fannie Mae and Freddie Mac do not offer principal reduction plans as part of their HAMP modifications. To encourage this assistance, Treasury said it will pay the same principal reduction incentives to Fannie Mae or Freddie Mac if they allow servicers to forgive principal in conjunction with a HAMP modification.

While the new changes could greatly expand the number of homeowners who receive help from HAMP, it could invite controversy. Subsidizing real estate investors with taxpayer money in a time of rising rents doesn't makes much sense to Anthony Sanders, a real estate professor at George Mason University, for example.

Yet, HUD Secretary Shaun Donovan said that it doesn't matter whether the house next door to you is occupied by a tenant or an owner.

"If the house goes vacant, the value of your house goes down $5,000 or $10,000 that day," he said. "These are major problems for homeowners."

Following the press conference, the Federal Housing Finance Agency, which oversees Fannie and Freddie, issued a statement that said it would consider the changes to the HAMP program.

However, it noted that an analysis it recently conducted found "that principal forgiveness did not provide benefits that were greater than principal forbearance," signaling that the housing authority may not support reducing the principal on loans as a way to help homeowners.

No new funds need be allocated for HAMP's expansion. Since less than $10 billion of the $29 billion set aside for the program has been spent so far, said Timothy Massad, Assistant Secretary for Financial Stability at the Treasury Department. The administration would not hazard a guess at how many more borrowers the expanded program would help.

The changes in HAMP do not take effect until the end of April, but a Treasury spokeswoman said any struggling homeowners should reach out and seek foreclosure prevention counseling immediately. That way, they can learn their options, which could include trying to hold on until the new HAMP is ready.

More from CNNMoney:
Has Obama's Housing Policy Failed?
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Also see:
Freddie Mac Bet on Homeowners' Misery, Report Says

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Taking Inventory: Foreclosure Finds Across the U.S.
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HAMP Redux: Changes in Fed's Foreclosure Prevention Program

Location: Trenton, N.J. 
Average Foreclosure Discount: 67.8 percent

Price: $198,500
Beds/Baths: 3/2
Sq. Ft.: N/A

Trenton ranks No. 1 on RealtyTrac's list of cities with the steepest foreclosure discounts. This single-family, whose price was slashed recently, represents one of the killer deals you can find in the city. 

See more foreclosed homes in Trenton, N.J.

Dating back to the 1960s, this Cape Cod-style home offers three bedrooms and two baths. Judging by the average foreclosure discount of New Jersey, the home could be running as much as $150,000 below market value. 

Location: Atlanta 
Average Foreclosure Discount: 49.67 percent

Price: $3.75 million
Beds/Baths: 7/10
Sq. Ft.: 22,000

Foreclosed homes in Atlanta are selling for a staggering 50 percent off, according to data from RealtyTrac. This vacant Mediterranean mansion offers a rather excessive four kitchens along with amenities that include a home theater, pool, spa, steam room and elevator. 

See other foreclosed homes in Atlanta

With its gleaming double staircase, the foyer's richly finished, sparkling-clean interior contrasts with the scene at many foreclosed homes, which often show neglect. 

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At a whopping 22,000 square feet, the home's cavernous interior is distinctly palatial.

See other foreclosed homes in Atlanta.

Location: Houston
Average Foreclosure Discount: 48.14 percent

Price: $4.29 million
Beds/Baths: 5/9
Sq. Ft.: 12,129

It may be hard to believe that $4.29 million is a below-market price, but given that this stucco Mediterranean is bank-owned and Houston's foreclosure discount approaches 50 percent, odds are that the home could be quite a deal for a well-heeled buyer. 

See other foreclosed homes Houston.

The home has a stone exterior and tile roof, along with a courtyard, pool and outdoor kitchen. The interior stretches 12,129 square feet. 

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After weaving around columns and through arched doorways, you reach the home's library or its fully-contained suite, accessible through its own entrance. 

See other foreclosed home for sale in Houston

Location: St. Louis
Average Foreclosure Discount: 54.61 percent

Price: $89,900
Beds/Baths: 3/2
Sq. Ft.: 1,342

This brick-built home, which dates back to 1930, probably hit the market at a reduced price to begin with, but now is running even lower, having just undergone a price cut. The home offers stained-glass windows and wood flooring along with a spruced-up kitchen. 

See more foreclosed homes for sale in St. Louis.

Pictured here is the home's updated kitchen. The residence is even more of a deal if you factor in its purported HomePath Mortgage status. That means if you've got the right credit, you could snatch it for as little as 3 percent down. 

See more foreclosed homes for sale in St. Louis.

Location: Lansing, Mich. 
Average Foreclosure Discount: 44.31 percent

Price: $124,900
Beds/Baths: N/A
Sq. Ft.: 2,228

Squeezed into a condo community, this historic home stands out in the neighborhood because of its stately portico. The home has a long residential tradition, but could go commercial if the buyer so chooses: The house can serve as an office, according to the listing. 

See other foreclosed homes in Lansing, Mich.

The home's portico gives it a tinge of the pastoral era in which it was built. The classic was constructed in 1855. 

See other foreclosed homes in Lansing, Mich.

Location: Grand Rapids, Mich. 
Average Foreclosure Discount: 43.45 percent

Price: $289,900
Beds/Baths: 4/4
Sq. Ft.: 4,339

You get a lot of bang for your buck if you buy  this four-bedroom contemporary. Located on a cul-de-sac, the home spans a generous 4,339 feet and offers a three-car garage. At under $300,000, that makes it an affordable luxury residence.  

See more foreclosed homes in Grand Rapids, Mich. 

Along with its expansive interior, the home also boasts its own heated greenhouse, along with a theater and office. 

See more foreclosed homes in Grand Rapids, Mich. 

Location: Flint, Mich. 
Average Foreclosure Discount: 21.55 percent

Price: $109,600
Beds/Baths: 4/3
Sq. Ft.: N/A

Purchase a foreclosed home in Flint and you're likely to enjoy the benefit of more than 20 percent off. While the city's foreclosure inventory doesn't offer deals quite as striking as those found in some other cities wracked by the housing crisis, the town's average foreclosed-home price still falls far, far below the national median (which hovers above $200,000). Flint's average foreclosed-home price is just $60,578. This well-landscaped home demonstrates how far just $110,000 gets you. 

See more foreclosed homes in Flint, Mich. 

The home may be a bit bare-bones now, but as the listing asserts, the home has "lots of potential." It comes with a pool, a deck and a two-car garage. 

See more foreclosed homes in Flint, Mich. 

Location: Tampa, Fla. 
Average Foreclosure Discount: 24.97 percent

Price: $143,900
Beds/Baths: 6/4
Sq. Ft.: 2,920

At just $49 per square foot, this cheery home in Tampa, Fla., a city that took has taken a real shellacking from the housing crisis, offers of six bedrooms. 

See more foreclosed homes in Tampa, Fla.

The bank-owned property spans nearly 3,000 square feet and boasts a well-equipped kitchen with cherry-stained cabinetry and marble countertops. 

See more foreclosed homes in Tampa, Fla.

Location: Easton, Pa. 
Average Foreclosure Discount: 41.17 percent

Price: $29,900
Beds/Baths: 3/1
Sq. Ft.: 1,556

Alright! A listing description that levels with you. "This is a property that needs some work," it states. The home is not without its virtues, however: It offers ample space, three bedrooms and an attic. Furthermore, buyers can acquire 3 percent buyer's assistance if they make an offer by the 31st of this month. 

See more foreclosed homes in Easton, Pa.

One thing buyers should watch out for if they think about shelling out for these digs is that, as with many other foreclosures, there is no seller disclosure for buyers interested in this home. That means, unless you pay for a thorough inspection, you could discover hidden flaws after purchasing the place. 

See other foreclosed homes in Easton, Pa. 

Location: Chattanooga, Tenn. 
Average Foreclosure Discount: 40.39 percent

Price: $129,000
Beds/Baths: 3/2
Sq. Ft.: 1,456

This staid but cozy home is running for $129,000, about $40,000 over the average foreclosed home price in Chattanooga. The home offers a nice porch and decently finished interior. 

See more foreclosed homes for sale

Pictured here is the home's open dining-kitchen area. The place seems to be in pretty good shape for a foreclosed home. Many fall into poor condition, succumbing to insect infestations or other symptoms of neglect. 

See more foreclosed homes in Chattanooga, Tenn.

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