Under the original terms, a lender would have to write off 10 percent of a failing loan before the government would invest. Investors who hold a stake in failing loans through second liens may receive an up-front payment to waive their interest in the loan, HUD said. Some loans may be extended from their traditional 30-year length to 40 years. "These changes will not perfect the Hope for Homeowners program, but they will improve it greatly," HUD Secretary Steve Preston told a luncheon at the National Press Club.
Congress created Hope for Homeowners in July and gave HUD a $300 billion fund to insure failing home loans. But the program was so wrapped in red tape that it fell flat. "Because of strict guidelines and a number of unique and specialised requirements in the original law, few lenders have actually signed up and few borrowers have submitted applications," Preston said. Only a few dozen loans were pushed through the program in October, its first month of operation, and policy-makers decided to create new incentives to get borrowers to make use of it.