Loan modification program starts
The Treasury Department announced that the first six participants to sign up for President Obama's loan modification program are JPMorgan Chase, which will get up to $3.6 billion in subsidy and incentive payments; Wells Fargo, $2.9 billion; and Citigroup, $2 billion. The others are GMAC Mortgage, $633 million; Saxon Mortgage Services, $407 million; and Select Portfolio Servicing, $376 million. A statement issued by Wells Fargo said, "We view this modification program as yet another incremental opportunity for thousands of homeowners to preserve and maintain the dream of homeownership." Left unsaid is the fact that now the second wave of foreclosures will begin, as banks decide which loans are worth trying to save and which are not.
Details of the loan modification program Only loans where the cost of the foreclosure would be higher than the cost of modification will qualify. The modification plan calls for the bank to reduce interest rates so that the monthly obligation is no more than 38% of a borrower's pre-tax income, and the government would then kick in money to bring payments down to 31% of income. Mortgage servicers (banks and mortgage companies) can also reduce the loan balance to achieve these affordability levels, and the government will share in the cost of the reduction, up to the amount the servicer would have received if it had reduced the interest rates.
Treasury will not provide subsidies to reduce rates to levels below 2%. In addition to subsidizing the interest rates, servicers will use Treasury funding to pay for incentives for themselves, homeowners, and investors. The program gives servicers $1,000 for each modification and another $1,000 a year for three years if the borrower stays current. It will also give $500 to servicers and $1,500 to mortgage holders if they modify at-risk loans before the borrower falls behind. Homeowners will even get up to $1,000 a year for five years if they keep up with payments. The funds will be used to reduce their loan principals. "We're confident we'll have enough money," said Treasury spokesman Andrew Williams. Of course you will...if you run out, you'll just print more, right?
Eric - Wow! The second wave of foreclosures will begin, as banks decide which loans are worth trying to save and which are not. That's not good for the housing market! I have been wondering about it especially with the bailout money that been given to the banks! I have been watching the housing market and watching what happen with the banking across the States. I will need to keep watching it!