Letter to Secretaries Geithner and Donovan calls for change to Making Home Affordable program

June 18, 2009

Washington, D.C. – Nevada Senator Harry Reid today sent a letter to Treasury Secretary Timothy Geithner and Housing and Urban Development (HUD) Secretary Shaun Donovan, asking them to modify the loan-to-value eligibility requirement of the Making Home Affordable program.  This change would make it easier for the 65 percent of Nevada homeowners who currently owe more than their home is worth to refinance and avoid the threat of foreclosure.  Below is Reid’s letter to Secretaries Geithner and Donovan.


The Honorable Timothy Geithner
Secretary
U.S. Department of the Treasury
1500 Pennsylvania Avenue NW
Washington, D.C. 20220

The Honorable Shaun Donovan
Secretary
U.S. Department of Housing and Urban Development
451 17th Street SW
Washington, D.C. 20410

Dear Secretaries Geithner and Donovan:

            I am writing today to request that you increase the loan-to-value (LTV) eligibility requirement of the administration’s “Making Home Affordable” refinance program to allow more Nevada home owners to participate.  The program’s requirement that home owner equity be equal to or less than 105 percent of the home’s current value has denied too many Nevadans the opportunity to enjoy the savings that refinancing their mortgages at today’s rates would bring.  To help achieve our mutual goals of stabilizing the housing market in Nevada and stimulating economic growth, the LTV requirement should be adjusted upward.

            Nevada has been the nation’s unfortunate leader in many of the indicators of our country’s persisting housing crisis.  These include the foreclosure rate as well as the percentage of home owners with negative equity in their homes.  By some estimates, 65 percent or more of Nevada home owners owe more on their home than the current value.   This is a staggering figure that poses economic challenges for individual home owners as well as my state as a whole. 

            As you know, many experts agree that negative equity can become a significant cause of mortgage defaults. When negative equity in a home becomes too large in proportion to the outstanding debt, some home owners will simply walk away from their obligation to pay the mortgage, opting instead to break the mortgage contract and damage their credit in the process.  There are scores of reports of this happening in Nevada, and the phenomenon can exacerbate the housing crisis because it ultimately may lead to further downward pressure on home prices.  While I certainly do not condone home owners breaking their mortgage contract in this way, the many instances of Nevadans choosing this option demonstrates the severity of the crisis in my state as well as the feeling of desperation many Nevada home owners are experiencing.  

            I applaud your efforts so far to prevent foreclosures and stabilize the housing sector, including the most recent effort to encourage short sales.  The Making Home Affordable programs you have designed are still in their infancy but already have yielded many successes.  Importantly, these programs do not necessarily make assistance contingent on home owners being in default, as some of the initial responses by industry often did; rather, they aim to provide assistance to responsible home owners in order to prevent defaults when possible. 

            Increasing the LTV criterion for the refinance program would be an expansion consistent with this principle.  Indeed, implementing this change could reduce risk to Fannie Mae and Freddie Mac – guarantors of the only mortgages eligible for the program – by making more mortgages in Nevada more affordable and thus less prone to default.  And allowing more Nevadans to refinance through this program will help stabilize Nevada’s housing prices.   

            I also urge you to take steps to encourage mortgage servicers to make use of the Hope for Homeowners program in assisting Nevada home owners.  This initiative was designed to especially benefit home owners “underwater” and would place those assisted in a position of positive equity.  I hope you give every consideration to these requests and look forward to your response.

            My best wishes to you.

                                                            Sincerely,


                                                            HARRY REID
                                                            United States Senator
                                                            Nevada