WASHINGTON - Today, as part of its ongoing commitment to continuously improve housing relief efforts, the Administration announced adjustments to the Home Affordable Modification Program (HAMP) and to the Federal Housing Administration (FHA) programs. These program adjustments will better assist responsible homeowners who have been affected by the economic crisis through no fault of their own. The program modifications will expand flexibility for mortgage servicers and originators to assist more unemployed homeowners and to help more people who owe more on their mortgage than their home is worth because their local markets saw large declines in home values. These changes will help the Administration meet its goal of stabilizing housing markets by offering a second chance to up to 3 to 4 million struggling homeowners through the end of 2012. Costs will be shared between the private sector and the Federal Government; the Federal cost of these changes will be funded through the $50 billion allocation for housing programs under the Troubled Asset Relief Program (TARP).

Housing Policy Overview

The Administration's goal is to promote stability for both the housing market and homeowners. To meet these objectives, the Administration has developed a comprehensive approach using state and local housing agency initiatives, tax credits for homebuyers, neighborhood stabilization and community development programs, mortgage modifications and refinancing, and support for Fannie Mae and Freddie Mac. The Administration's efforts for homeowners have focused on giving responsible households an opportunity to remain in their homes when possible while they get back up on their feet, or to relocate to a more sustainable living situation. Today, mortgage rates are at record lows and, thanks in large part to these programs, more than four million homeowners have refinanced their mortgages to more affordable levels helping to save more than $7 billion annually, more than one million are saving an average of over $500 per month through the Administration's modification program, home equity increased by more than $12,000 for the average homeowner in the last three quarters last year and the economy is growing.

Even with this success, we continue to see challenges. Servicers were slow to implement HAMP, resulting in a slow start for the program. Recent improvements in the program have accelerated the pace of modifications, and the adjustments announced today will improve performance. But our strategy to address the crisis must evolve because our challenges have also evolved.

Our housing initiatives must balance the need to help responsible homeowners struggling to stay in their homes, with the recognition that we cannot and should not help everyone. The President has said: “We can't stop every foreclosure.” And in fact, we can't maintain the balance described above if we assist every borrower. For example, investors and speculators should not be protected under our efforts, nor should Americans living in million dollar homes or defaulters on vacation homes. Some people simply will not be able to afford to stay in their homes because they bought more than they could afford. Instead, the Administration must focus on providing responsible homeowners opportunities to obtain a modification or to refinance and prevent avoidable foreclosures and, when necessary, must facilitate the transition to a more sustainable housing situation. The adjustments announced today are tailored to accomplish these goals by helping a targeted group of borrowers.

Eligible homeowners for modifications under HAMP must, for example: live in an owner occupied principal residence, have a mortgage balance less than $729,750, owe monthly mortgage payments that are not affordable (greater than 31 percent of their income) and demonstrate a financial hardship. The new flexibilities for the modification initiative announced today continue to target this group of homeowners.

The FHA refinance options being announced today will provide more opportunities for lenders to restructure loans for some families who owe more than their home is worth. This is a voluntary program for lenders and homeowners. The population eligible for a FHA refinance must be current on their mortgage. This rewards responsible homeowners and creates stabilizing incentives in the housing market.

Taken together, the Administration's broad housing initiatives and the new flexibilities announced today will offer a second chance to millions of responsible, middle-class American families struggling to stay in their homes and will help to stabilize our households, neighborhoods and communities.

Background on Housing Program Initiatives to Date

The Administration has taken a broad set of actions to stabilize the housing market and help American homeowners. These efforts are having an impact on our housing markets - we are seeing signs of stabilization. Looking back to over a year ago - stress in the financial system had severely reduced the supply of mortgage credit, limiting the ability of Americans to buy homes or refinance mortgages. Millions of responsible families who had made their monthly payments had fulfilled their obligations saw their property values fall, and found themselves unable to refinance at lower mortgage rates.

In February 2009, less than one month after taking office, President Obama announced the Homeowner Affordability and Stability Plan. As part of this plan and through other housing initiatives, the Administration has taken the following actions to strengthen the housing market:

Actions Supporting Market Stability and Access to Affordable Mortgage Credit

• Provided strong support to Fannie Mae and Freddie Mac to ensure continued access to affordable mortgage credit across the market;
• Together, Treasury and the Federal Reserve have purchased more than $1.4 trillion in agency mortgage backed securities, which have helped keep mortgage rates at historic lows, allowing homeowners to access credit to purchase new homes and refinance into more affordable monthly payments; and
• The FHA has played an important counter-cyclical role, providing liquidity for housing purchases at a time when private lending has declined.

Actions Helping Homeowners Purchase Homes, Refinance and Modify Mortgages to More Affordable Payments, Prevent Foreclosures and Stabilize Communities

• Launched a modification initiative to help homeowners reduce mortgage payments to affordable levels and to prevent avoidable foreclosures;
• Supported expanding the limits for loans guaranteed by Fannie Mae, Freddie Mac, and FHA from previous limits up to $625,500 per loan to $729,750;
• Expanded refinancing flexibilities for the Fannie Mae and Freddie Mac loans, particularly for borrowers with negative equity, to allow more Americans to refinance;
• Launched a $23.5 billion Housing Finance Agencies Initiative which is helping more than 90 state and local housing finance agencies across 49 states provide sustainable homeownership and rental resources for American families;
• Supported the First Time Homebuyer Tax Credit, which has helped hundreds of thousands of responsible Americans purchase homes.
• Through the Recovery Act is providing over $5 billion in support for affordable rental housing through low income housing tax credit programs and $2 billion in support for the Neighborhood Stabilization Program to restore neighborhoods hardest hit by concentrated foreclosures; and
• On February 19, 2010, the Administration announced the $1.5 billion HFA Hardest Hit Fund for housing finance agencies in the nation's hardest hit housing markets to design innovative, locally targeted foreclosure prevention programs.

Historically low mortgage rates along with expanded refinancing flexibilities for Fannie Mae and Freddie Mac loans have helped more than four million American homeowners with Fannie Mae and Freddie Mac loans to refinance, saving an estimated $150 per month on average and more than $7 billion in total. HAMP has provided more than 1 million struggling homeowners a second chance to stay in their homes - with each homeowner in a modification saving more than $500 per month on average.

Together, these initiatives are having an impact - strengthening the housing market, helping responsible homeowners prevent avoidable foreclosures and rebuilding communities and neighborhoods. Today mortgage rates remain at historic lows - the primary interest rate is now about 5 percent, lower than at any time in the three decades before the crisis. We are also seeing encouraging signs in housing indicators - home prices and the pace of home sales have stabilized in recent months.

Earned Principal Forgiveness Among Enhancements to Its National Homeownership Retention Program

Approach to Modifying Severely Underwater Loans Aimed at Encouraging Greater Homeowner Participation in Modification Programs

CALABASAS, Calif., March 24 /PRNewswire/ — Bank of America announced it will look first at principal forgiveness – ahead of an interest rate reduction – when modifying certain subprime, Pay-Option and prime two-year hybrid mortgages qualifying for its National Homeownership Retention Program (NHRP). Several enhancements are being made to the program, including the introduction of an earned principal forgiveness approach to modifying mortgages that are severely underwater. The program changes are designed to encourage greater customer participation in the company’s aggressive homeownership retention programs, including our continued strong commitment to the federal government’s Home Affordable Modification Program (HAMP

The Commonwealth of Massachusetts worked with Bank of America to develop these additional homeownership retention strategies that help ensure sustainable solutions and is the most recent state to join the NHRP. There are now 44 states and the District of Columbia participating in the NHRP mortgage modification program and related foreclosure relief payment and relocation assistance programs.

Bank of America developed and launched the NHRP in 2008, in cooperation with state attorneys general, to provide assistance to Countrywide borrowers who financed their home with certain subprime and Pay-Option adjustable rate mortgages (ARMs). Bank of America removed these from the Countrywide product line upon acquiring Countrywide in July 2008.

These new components of the agreement apply to certain NHRP-eligible loans that also meet the basic qualifications for the government’s Home Affordable Modification Program. They include:

• A first look at principal reductions in calculating an affordable payment through an earned principal forgiveness approach to severely underwater loans.
• Principal forgiveness through a reduction of negative-amortization on certain Pay-Option ARMs.
• Conversion of certain Pay-Option ARMs to fully amortizing loans prior to a recast.
• Addition of certain prime two-year hybrid ARMs as eligible for the NHRP mortgage modification programs.
• Inclusion of Countrywide mortgages originated on or before January 1, 2009, as eligible for modifications under the terms of the NHRP.
• A six-month extension of the term of the NHRP program to December 31, 2012.

“The centerpiece of these enhancements is a program of earned principal forgiveness that addresses severely underwater mortgages with some of the highest rates of delinquency – specifically subprime loans, Pay-Option ARMs and prime two-year hybrid ARMs that are 60 days or more delinquent with a principal balance of 120 percent or more,” said Barbara Desoer, president of Bank of America Home Loans.

“At the same time earned principal forgiveness helps homeowners, it also recognizes and addresses the interests of mortgage investors by ensuring that forgiveness is tied to the homeowner’s performance, reducing the probability of a future default under the modified terms, and adjusting the total amount to be forgiven in light of any gains in Property values that might occur in an economic recovery.”

Bank of America expects to be operationally ready to implement the new principal reduction components of NHRP in May. The bank will identify mortgages that may be eligible for these solutions and proactively contact those customers to ascertain their interest in a modification and to request documents necessary to determine actual eligibility.

First Look at Principal Reductions

With implementation of these enhancements, Bank of America will make principal reduction the initial consideration toward reaching the HAMP’s target for an affordable payment equal to 31 percent of household income when modifying qualifying subprime, Pay-Option ARM and prime two-year hybrid ARM loans that are also eligible for NHRP. An interest rate reduction and other steps would then be considered, if additional savings are necessary to reach the targeted payment.

“In our experience with Home Affordable Modification Program and National Homeownership Retention Program modifications, Bank of America has found that many homeowners who owe considerably more on their mortgages than their homes are worth are reluctant to accept a solution that addresses only the amount of the payment without an accompanying reduction in the balance due on the loan,” Desoer said. “We believe that by first addressing the significant underwater condition of some NHRP-eligible loans, the rates of customer acceptance of HAMP trial modifications and conversions to permanent modifications on those loans will be improved, and the homeowners will be more motivated to make payments, yielding more sustainable modifications.”

Earned Principal Forgiveness

Bank of America is taking an innovative “earned principal forgiveness” approach to HAMP modifications of the NHRP-qualifying mortgages that are at least 60 days delinquent with current loan-to-value (LTV) ratios of 120 percent or higher.

• An interest-free forbearance of principal that the homeowner can turn into forgiven principal over five years resulting in a maximum 30 percent decrease in the loan principal balance to as low as 100 percent LTV.
• In each of the first five years, up to 20 percent of the forborne amount will be forgiven annually for borrowers that remain in good standing on their mortgage payments.
• Forgiveness installments for the first three years are set at the 20 percent level.
• In the fourth and fifth years, the amount of forgiveness will be dependent upon the updated value of the property, so that the LTV will not be reduced below 100 percent through principal forgiveness.

This solution will be considered when it provides a more positive outcome under the net present value test than under the standard HAMP guidelines.

Innovative Solutions for Customers with Pay-Option ARMs

Bank of America has begun offering two other affordable and sustainable payment solutions on certain Pay-Option ARMs.

• If the principal balance on the loan has grown because the borrower selected an option to make payments that did not cover the interest due and this payment difference was added to principal – known as negative amortization – the bank will consider offering a HAMP modification eliminating the negative amortization feature and forgiving all or part of the negative amortization amount to reduce principal to as low as 95 percent LTV.
• If a pending recast of a Pay-Option ARM will increase the customer’s monthly payments, a preemptive modification that eliminates the negative amortization feature of the mortgage and converts it to a fully amortizing market rate loan may be offered.

Impact of Mortgage Modification Efforts

The bank estimates that it will be able to offer these enhanced principal reduction solutions to about 45,000 customers who qualify for a HAMP modification, for an estimated $3 billion in total reduced principal offered under this NHRP enhancement.

From implementation of the NHRP in December 2008 through December 2009, Bank of America offered an NHRP modification or started an NHRP-eligible trial modification under the HAMP for more than 175,000 homeowners, providing potential aggregate savings of more than $7.2 billion over the full terms of the loans. The original program is ahead of schedule and certain to exceed original expectations of offering up to $8.4 billion in savings.

Through its overall homeownership retention efforts since January 2008, Bank of America has helped more than 760,000 customers with a completed loan modification or HAMP trial modification. That includes more than 500,000 completed modifications through proprietary programs; plus nearly 21,000 completed mortgage modifications and more than 240,000 active trial modifications through the federal government’s HAMP program through February