New mortgage relief program announced.
Reuters:
The Obama administration on Friday announced a $14 billion effort to
try to stem a rising tide of home foreclosures by giving lenders
incentives to erase some mortgage debt and slash mortgage payments for
the unemployed.
The new aid programs, funded from the $50 billion
allocated to housing rescue under the Treasury Department's Troubled
Asset Relief Program, will also allow borrowers to erase mortgage debt
down to a maximum of 115 percent of their home's value by refinancing
through the Federal Housing Administration.
The plan comes as
President Barack Obama is under increasing political pressure to change
his strategy for helping struggling homeowners and stem the tide of
rising foreclosures and is the second major housing initiative announced
in as many months.
Delinquencies on mortgages nationwide rose to
nearly 14 percent in late 2009, led by a sharp increase in seriously
overdue home loans held by the most credit-worthy borrowers, banking
regulators said earlier on Thursday.
The new measures are a shift
from the efforts announced last year, which focused on reducing interest
rates for struggling borrowers who got risky loans.
The latest
efforts are targeting unemployed workers and homeowners in places where
home values have plunged across the board and it is increasingly making
more financial sense for homeowners to walk away from their mortgage.
The
plan announced in 2009, known as the Home Affordable Modification
Program, has more than a million borrowers who have had their payments
temporarily reduced, but only around 170,000 borrowers who have received
permanent modifications.
That ratio has drawn sharp criticism
from both Democrats and Republicans on Capitol Hill, as well as a sharp
rebuke from the watchdog overseeing the $700 billion bailout.
Ohio
Democratic Representative Dennis Kucinich told the administration
official responsible for overseeing the bailout on Thursday he had not
seen any "bold, new" initiatives for underwater borrowers.
"What
are we doing to help those people who owe more on their homes than the
home is worth?" Kucinich asked.
The new efforts include at least
three and at most six months of temporary assistance for jobless workers
and incentives for mortgage servicers to write down part of the
principal balance.
Recognizing the difficulties for so-called loan
servicers to modify loans for unemployed workers, the administration's
plan aims for lenders to cut payments on existing loans to 31 percent of
a borrowers income.
The principal reduction plan would be
administered under HAMP and is modeled after a principal reduction plan
announced this week by Bank of America.
Under pressure from
Massachusetts Attorney General Martha Coakley, Bank of America Corp.
said on Wednesday it would offer what could be up to $3 billion in loan
forgiveness to about 45,000 troubled homeowners.