Plan unveiled to reduce some home loans

AP Real Estate Writer
WASHINGTON (AP) - 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
AP Economics Writer Christopher S. Rugaber contributed to this

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