Last week the Administration announced several adjustments to the Making Homes Affordable Loan Modification Program (MHA/HAMP) and modified the existing FHA Refinance Program.  These actions, paid for in part by TARP funds, are designed to address a growing population of distressed borrowers (and also those unemployed) without costing the tax payer additional income.

The Obama Administration's allocation of TARP funds to pay for the newly updated programs is something that was advocated during the fall of 2008.

In August 2007, the FHA made a similar decision aimed at helping delinquent and overburdened borrowers when it launched FHASecure.  The product, which ultimately assisted 525,000 at-risk homeowners through a rate/term refinance, was designed to deliver aid to subprime borrowers whose ARM resets had increased their mortgage payments to unaffordable levels. The product was later expanded to delinquent borrowers.

In the weeks before the 2008 election there were many discussions at HUD and Treasury as to how more at-risk homeowners could be helped.  Among the programs discussed was an even bigger role for the FHA through dramatic expansions of FHASecure and the fledgling Hope for Homeowners (H4H) program (whose initial structure made its use impractical).

Also advocated by HUD was using TARP funds for the purchase of whole loans.  Under the proposed plan, TARP funds would’ve been used to purchase large blocks of whole loans from lenders which would be insured through the H4H program.  The refinanced loans would be securitized via Ginnie Mae thereby returning money to TARP for additional asset purchases. 

In tandem TARP funds would’ve been utilized for the purchase of second liens at a deep discount to free up even more primary mortgages for refinancings, including through H4H and FHASecure.   And all the while the families would have remained in their homes and continued to make payments under a restructured mortgage loan.

Unfortunately, that part of the program never got off the ground. At least now there is now some recognition that TARP funding will play an expanded role in tackling the nagging housing crisis.