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March 26, 2010 in Business, Nation/World
Government unveils plan to shrink some home loans
WASHINGTON — After months of criticism that it hasn’t done enough to prevent foreclosures, the Obama administration is announcing a plan to reduce the amount some troubled borrowers owe on their home loans.
The multifaceted effort will let people who owe more on their mortgages than their properties are worth get new loans backed by the Federal Housing Administration, a government agency that insures home loans against default.
That would be funded by $14 billion from the administration’s existing $75 billion foreclosure-prevention program. But it could spark criticism that the government is shouldering too much risk by taking on bad loans made during the housing boom. In addition, their existing mortgage companies will be able to receive incentives to lower their principal balances.
The program also includes assistance to help unemployed homeowners keep paying their mortgages.
But the administration cautioned that the plan isn’t intended to stop all foreclosures or assist all troubled homeowners.
A Treasury Department document said, “investors and speculators should not be protected under our efforts, nor should Americans living in million dollar homes or defaulters on vacation homes.”
“Some people simply will not be able to afford to stay in their homes because they bought more than they could afford,” the document said.
Mark Zandi, chief economist at Moody’s Analytics, estimated the plan could help between 1 million and 1.5 million homeowners avoid foreclosure. That compares to 4.5 million that are already in foreclosure proceedings or 90 days delinquent on their mortgages, he said. There are another 10 million homeowners who owe more than their homes are worth, Zandi estimates.
“The changes are wide-ranging and significant and have the real potential for bringing the foreclosure crisis to a much quicker end,” Zandi said.
The plan is the latest effort by the Obama administration to tackle the foreclosure crisis which has continued to grow under its watch. Home foreclosures have soared despite the administration’s effort to prevent foreclosures, a complex and problem-plagued endeavor involving more than 100 mortgage companies. Only 170,000 homeowners have completed that process out of 1.1 million who began it over the past year.
“We remain dubious about government mortgage modification efforts,” wrote Jaret Seiberg, an analyst with Concept Capital’s Washington Research Group. “So far none have lived up to expectations and we see little reason to believe the latest effort will turn out any different.”
The plan announced Friday will also require the 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 includes 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 four big holders of second mortgages — Citigroup Inc., Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co. — have now joined the government’s program to modify second mortgages. That program was delayed for months but with Citi on board, the major players in the industry are now on board.
Critics have complained that the Obama administration has done little until now to encourage banks to cut borrowers’ principal balances on their primary loans. Nearly one in every three homeowners with a mortgage are “under water” — they owe more than their property is worth — according to Moody’s Economy.com.
© Copyright 2010 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Seven firms or nonprofits win Agora Awards 
horse_feathers on March 26 at 10:29 a.m.
Where has all the money already given to the problem gone? Is there an endless supply? Are we waisting money? How about the National Debt? How long can this waist go on? Has the steps taken so far really helped or has it put us into a deeper hole? Who will pay our debt? Will it be so much that our American way of life will end? Will another country take us over? Will our children be free? Have we sold thier future? Is it too late? Can we stop the bleeding?
Not_woriking on March 26 at 12:38 p.m.
Government unveils plan to shrink Government.
Now that would be a headline everyone can get behind.
gotcha on March 26 at 1:05 p.m.
Tax paying fiscally conserative people in this country are nothing more than a bail out system for liberal socialistic individuals that like living off of our tax dollar because they can’t tell that they are living over their heads when they have a hard time making a mortage payment…..yeah I know i’m a babby killer that doesn’t care about you and I should feel sorry for you because you don’t have enough money to buy gas for your new Buick, let alone pay for medical insurance …Some of you are just idiots that God couldn’t help let alone Obama.
misjustice on March 26 at 2:14 p.m.
The Big 4 are getting onboard because they already hold the paper on houses that have been forclosed on and can’t afford to own anymore empty houses in a market with a glut of unsaleable houses.
It will be better to reduce the principle and keep people in the homes…something that the Big 4 should have been working to do without the federal government getting involved.
The initial bail out for those deemed too big to jail went into their vaults so they could continue to do business as usual and was handed out by King Henry (Paulson) during the waning hours of the Cheney administration with very few strings attached. The banks did not help struggling mortgage holders, hence the continued rise in defaults…plus the run up to the housing bubble - facilitated by false home values jacked up by hedge fund bets - meant that many people borrowed money on homes that in fact were not worth as much as they sold for…
Hence, many are “underwater” owing far more on homes than what they are worth…
horse_feathers on March 26 at 3:11 p.m.
Misjustice,
I agree generally with the blame you place on the previous administration but find it a little telling that you totally disregard the current administration’s responsibilty as they have spend way more in these alleged bailouts since they have been in power.
gotcha on March 26 at 3:33 p.m.
Making loans available to people who couldn’t afford them has been going on since the 1990 era….Combination of greedy lenders, and people making purchases on property that they couldn’t afford and were to stupid to understand it. I still feel that we should let this stinking market sift itself out…Might hurt for awhile but when its done you might know what your house is actually worth. Continually throwing money in this pit is going nowhere.
smarg on March 26 at 3:57 p.m.
WHEY MAH CHECKS BE?? ODUMBO BE DONE PROMISED ME MAH CHECKS!!