The administration is taking on a new enemy to homeowners: home price declines that plunge borrowers underwater on their mortgages. The US Treasury Department as part of its Home Affordable Modification Program (HAMP) designed a new Home Price Decline Protection (HPDP) program to add to its alphabet soup of lender and servicer incentive initiatives. The new program aims to encourage lender and servicer participation in areas with recent home price declines by helping to offset incremental collateral loss on modifications that don’t succeed. HPDP servicer incentives are linked to the degree of home price decline in the area as well as the mortgage’s unpaid principal balance and mark-to-market loan-to-value ratio. Treasury said the program ensures borrowers in areas with recent home price declines are able to stay in their homes, which should minimize foreclosures in the area and keep home values from becoming depressed. “This is an important next step in our multi-faceted efforts to bring relief to struggling homeowners and stabilize the housing market,” said assistant secretary for financial institutions Michael Barr in a Treasury statement. “Home price decline protection can help homeowners who may not have been reached otherwise.” Treasury allocated $10bn for the program, but the actual amount used depends on price trends. The program applies to all modifications made through HAMP after Sept. 1, 2009, but not to loans owned or guaranteed by Fannie Mae (FNM) or Freddie Mac (FRE). Write to Diana Golobay. Disclaimer: The author held no relevant investments at the time this story was published.

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