March 27th, 2010 1:46 PM by Lehel S.
The effort will let people who owe more on their mortgages than their properties are worth get new loans backed by the Federal Housing Administration, people briefed on the plan said. It would be funded by $14 billion from the administration's existing $75 billion foreclosure-prevention program.
The people briefed on the plan asked Thursday that they not be identified because the details had not yet been announced.
The plan will also require the more than 100 mortgage companies participating in the administration's existing foreclosure prevention program to consider slashing the amount borrowers owe. They will get incentive payments if they do so.
It also will include three to six months of temporary aid for borrowers who have lost their jobs. And there will be additional payments designed to give banks an incentive to reduce payments or eliminate second mortgages such as home equity loans—a problem that has blocked many loan modifications.
The changes "will better assist responsible homeowners who have been affected by the economic crisis through no fault of their own," an administration official said.
To date, the administration's $75 billion foreclosure-prevention program has been a disappointment.
An expansion of the foreclosure-prevention program has long been expected because only 170,000 homeowners have completed the process out of 1.1 million who began it over the past year.
The program is designed to lower borrowers' monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms up to 40 years. To complete the program, homeowners need to go through a three month trial period and provide proof of their income, plus a letter documenting their financial hardship.
Though $75 billion in funding is available to the more than 100 lenders who have signed up, only a tiny fraction has been spent. Lenders had received $58 million in incentive payments as of last month, according to the Government Accountability Office.
Meanwhile, one long-delayed piece of the government effort is getting off the ground.
Citigroup Inc. on Thursday joined the government's program to modify second mortgages such as home equity loans. With Citi on board, now four big owners of second mortgages have joined. The others are Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co.