Efforts have been expanded by the Obama administration to help prevent Americans from losing their homes. This program is designed to give financial incentives to companies who are willing to modify the terms of second mortgages that are in trouble. This program builds on the ‘Making Home Affordable Program’, which was announced in February of this year, to slow the rising rate of home foreclosures by lowering the homeowner’s monthly mortgage payments. The Obama administration will now offer cash rewards to mortgage services, which act as bill collectors for investors who own pools of mortgages.
It is estimated that as many as 6 million homeowners all over the country could be at risk of foreclosure over the next several years. If this many Americans foreclosed on their properties it will prolong the worst housing slump recorded in recent times and definitely delay the economic recovery of this nation. The program hopes to prevent an estimated 4 million foreclosures.
While many mortgage services have and will agree to adjust troubled primary mortgages, efforts to do so have been hindered by the holders of second liens or second mortgages as they are more commonly called. This is mainly because these lien holders have had very little incentive to rework loan terms when the primary mortgage services because there was no payment for these lien holders if they did.
The treasury department expects to spend around $75 billion trying to rescue troubled mortgages. The new plan will have the Treasury Department paying $500 to second-lien services that agree to adjust the homeowner’s second mortgage and $250 a year for three years if the homeowner stays current on their payments.
There is also an incentive of $250 a year for around 1.5 million homeowners if they remain current on their payments for their second mortgages. This subsidy will be applied towards what is owed on the principal of their primary mortgage.
To help with interest-only loans, the government will share the cost of acquiring an interest rate as low as 2% on their second mortgage. Mortgage services that cover around 75% of primary mortgages are currently participating in the program.
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