President Obama Unveils Mortgage Modification Program
Since the middle of February, we have been waiting for concrete details about President Obama’s mortgage modification program. Today, he announced the details of the plan to create a l
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oan modification that the administration says will help keep 9 million people in their homes. JPMorgan Chase, Wells Fargo and Citigroup have all agreed to participate, and will be receiving subsidies to help them cover the costs of loan modification. Other companies that are participating Select Portfolio Servicing, GMAC Mortgage and Saxon Mortgage Services. Some of the details have been floating around in general, but today is the first day that specifics have been released. CNN Money reports on some of the details of the mortgage modification program:
The modification plan calls for the servicer to reduce interest rates so that the monthly obligation is no more than 38% of a borrower’s pre-tax income, and then the government would kick in money to bring payments down to 31% of income. Servicers can also reduce the loan balance to achieve these affordability levels. The government will share in the cost, up to the amount the servicer would have received if it had reduced the interest rates.
Only loans where the cost of the foreclosure would be higher than the cost of modification would qualify. Also, Treasury will not provide subsidies to reduce rates to levels below 2%.
There are also incentives for mortgage loan servicers — on top of the subsidies. Incentives for servicers and mortgage holders whose borrowers keep current, as well as those that modify mortgages before the borrower falls behind, are meant to encourage lenders to do what they can to ensure that homeowners can afford their mortgages and keep paying.
Mortgage lenders and servicers aren’t the only people getting incentives: Homeowners can get up to $1,000 per year for five years if they keep up with their payments. However, instead ot an outright payment, the incentive will be applied to the loan principal. Maybe mortgage lenders, instead of getting their incentives outright, can have them applied to paying back TARP funds they have received…
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