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Help for Burdened Mortgage Borrowers Offers Costs and Benefits

U.S. homeowners have been among the hardest-hit by the global economic meltdown. In the first of a series, analysts discuss the benefits and flaws of governmental and lender recovery plans, including Citibank's offer to modify loan terms for those falling behind.

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    Our economic coverage starts with a two-part look at rescue plans for the housing and financial crises.

    First, housing. Jeffrey Brown has the latest on new efforts by the government and lenders to help distressed homeowners.


    The plan announced today would set guidelines for modifying the delinquent mortgages of hundred of thousands of borrowers seeking to avoid foreclosure.

    More than four million homeowners are at least one payment behind, and 500,000 are in foreclosure, according to recent data.

    Fannie Mae and Freddie Mac own or guarantee nearly 60 percent of the nation's outstanding mortgages. The two companies have been held in conservatorship by the federal government since mid-September.

    The director of the Federal Housing Finance Agency, James Lockhart, outlined the criteria for streamlining loans.

  • JAMES LOCKHART, Federal Housing Finance Agency:

    The program targets the highest-risk borrowers who have missed three payments or more, own or occupy their property, and have not filed for bankruptcy.

    This program creates a fast-track method of getting troubled borrowers to an affordable monthly payment where affordable is defined as your first mortgage payment including homeowner association, condo dues of not more than 38 percent of the household's monthly gross income.

    This affordable payment will be achieved through a mix of reducing the mortgage interest rates, extending the term of the mortgage, or even deferring payment on a part of the principal.


    A number of private banks are testing or have started loan-modification programs of their own.

    Today's announcement by Citigroup will target borrowers still current on their mortgage payments but at risk for falling into foreclosure.

    And we assess these new approaches now with Faith Schwartz, executive director of the Hope Now Alliance, a group representing many of the biggest mortgage lenders and servicers. The group worked with the government on the plan announced today.

    And Bruce Marks, CEO of the Neighborhood Assistance Corporation of America, a nonprofit homeowner advocacy group.