HUD chief calls $25 billion mortgage settlement key to housing recovery

The government is working to get American homeowners above water and help build equity in their largest investment, Housing and Urban Development Secretary Shaun Donovan said Monday in Las Vegas.

The $25 billion national mortgage settlement is key to that goal, along with refinancing mortgages and reducing principal for those who are deeply underwater, Donovan said at the Asian Real Estate Association of America convention at Bellagio.

Nearly 6,000 Nevada homeowners have received $600 million in assistance on their mortgage, or $100,000 on average, particularly in the form of mortgage reduction, Donovan said. Banks get credit from the settlement only if they reduce payments for homeowners to keep them in their homes, and people are able to make three months of payments, the housing secretary explained.

“So there’s actually far more principal reduction than you’re seeing,” he said. “Because of the settlement, our hope is that principal write-downs will become not the exception when it comes to helping struggling homeowners, but the standard.”

One of the bills before Congress right now would help homeowners who are locked out of the Home Affordable Refinance Program, or HARP, because their loan is not backed by a government entity such as Fannie Mae or Freddie Mac.

Refinancing has more than tripled under HARP and it’s 10 times higher for borrowers deeply underwater, Donovan said.

“We need every homeowner in Nevada to reach out to Congress and tell them we want them to pass the refinance program,” he said.

Donovan credited the Obama administration for creating programs and incentives to help “responsible” homeowners in Nevada and across the country hit hardest by the housing crisis.

“This audience knows that the second a single foreclosure sign goes up on your block, your home value drops by as much as $10,000,” he said. ”Well, in places like Las Vegas, you see neighborhoods filled with those signs.”

Nevada was ranked as the No. 1 foreclosure state in the nation until recently, when it fell behind Florida and Arizona.

Since President Barack Obama modified the HARP program in November, the number of Nevada homeowners who have applied for mortgage refinancing increased 260 percent, Donovan said during his keynote address at the convention.

“Collectively, we’ve ensured that every homeowner can refinance and recapture equity. Tearing down barriers to refinancing is critical to preserve communities,” he said.

A preliminary report on the mortgage settlement shows that homeowners are beginning to see results. Roughly 165,000 homeowners have received almost $14 billion in relief, or $76,000 on average, Donovan noted.

This includes homeowners currently in trial modifications who can expect their bank to not only reduce their monthly payments, but to actually write down more than $108,000 of mortgage debt on average. It also includes refinancing for underwater homeowners and the write-downs required to facilitate short sales that allow families who have been unable to get out from under hundreds of thousands of dollars of mortgage debt to move to a new job or start anew.

“For me, for all of us, all the work I’ve discussed is about rebuilding faith in the American dream,” Donovan said. “If this crisis has taught us anything about the American dream, it’s that if you can’t be protected from predatory lending and unscrupulous servicers, if you can’t move to get a new job because your home is so deeply underwater, or if you can’t even buy a home in the first place – no matter how hard you’ve worked or how much you’ve saved – then that’s no dream at all.”

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.