Obama to Announce Major Expansion of Mortgage Relief Program
Updated 11:00am ET
The Treasury Department has posted this press release with more details on the mortagage aid plan.
With estimates showing more than 3 million households may file for foreclosure by year’s end, the Obama administration is set to announce a major expansion this morning of its mortgage relief program by allowing laid-off homeowners to delay payments for several months or asking banks to forgive part of the principal that borrowers currently owe.
Full details were not yet released, but Treasury officials confirmed the outlines of the government’s more aggressive approach to the foreclosure problem to the NewsHour and other news organizations.
After taking office last year, Treasury officials launched a foreclosure prevention plan that sought to prevent at least three million foreclosures by 2012. But permanent loan modifications have been granted at a much slower pace than was expected. And the initial program was targeted at borrowers who bought their homes with risky sub-prime loans.
Fewer than 170,000 permanent modifications have been made in connection with the original program to date. Now, the Obama administration, which has been criticized for not doing more to jump-start the economy and to mitigate the fallout of the recession, is increasingly concerned about data showing the foreclosure crisis spreading to homeowners who have been laid off and whose homes are worth less than the mortgage they owe.
“These program adjustments will better assist responsible homeowners who have been affected by the economic crisis through no fault of their own,” said a Treasury official who insisted on remaining unidentified until the press conference.
Some of the newest efforts include:
Giving banks government incentives to cut the principal of an outstanding loan if it is 15 percent higher than the home is worth. The bank would forgive that amount of the loan over the course of three years. The aim would be to keep mortgage payments limited to no more than 31 percent of someone’s income.
Getting lenders to provide laid-off workers with a temporary break on monthly mortgage payments, for at least three months and possibly as much as six months.
- Offering new incentives to lenders to modify second mortgages and asking the Federal Housing Administration to offer more affordable loans to some borrowers who are considered “under water.” (Nearly one-fifth of all mortgages are now said to be “under water,” where the homeowner owes more than the value of the home.)
It may take up to six months before the program is fully phased in, Treasury officials said.
To qualify for some of the relief, borrowers would have to provide documentation that they are receiving unemployment insurance and their original loan must have been given before 2009. Homeowners must also have not missed more than three mortgage payments to qualify.
The latest initiative comes at the end of a week in which the administration has been criticized for its response and handling of the mortgage modification program. Earlier in the week, Neil Barofsky, the special Inspector General of the TARP (Troubled Asset Relief Program), released an audit where he criticized the Treasury Department for the execution and design of the original plan, saying it led to “disappointing results.” He also said Treasury had created criteria for the program that allowed some borrowers to qualify even if they did not have enough dependable income to continue to own a home.
As we reported on the NewsHour last night, the House Oversight Committee held a hearing on the same subject where lawmakers raised many of the same concerns.
It was not clear yet how many homeowners might be helped, but news accounts suggested that several million people could potentially qualify for the lower payments.
Treasury officials told the NewsHour and others that bringing payments down was the goal.
“The program modifications will expand flexibility for mortgage servicers and originators to assist more unemployed homeowners and to help more people who owe more on their mortgage than their home is worth because their local markets saw large declines in home values,” the official said.
The New York Times and other news organizations have reported that the Federal Housing Administration (FHA) will help refinance many of these loans. The role of the FHA in buying and guaranteeing mortgages has also been a growing source of concern to some economists and housing experts, who are worried about the government’s financial obligations.
Details of the newest plan are expected to be posted on the Treasury Department’s website for the Making Home Affordable Program. The government initially allocated $50 billion for mortgage modifications from federal bailout money last year, but so far only a small fraction of that money has been spent.