U.S. Treasury's update on its $75 billion mortgage scheme to reach larger loans and incentives will spill over into other programs.
Like most government bailouts these days, the Obama administration's loan modification program seems to be getting more ambitious while some major questions remain unanswered.
The U.S. Treasury provided new details Tuesday about its $75 billion effort to rework up to 4 million distressed mortgages. While much of the plan resembles the skeletal version released two weeks earlier, a few surprises tucked in will increase the program's scope.
One of them: Struggling borrowers with mortgages up to $729,750--a higher ceiling than many experts had expected--will be eligible for the program. This will cast a much wider net by suddenly including more expensive homes common in high-cost areas.
As earlier disclosed, the program will use blunt cash incentives to get servicers, lenders, investors and borrowers to rework distressed mortgages into ones with lower more manageable payments equal to 38% of a borrower's income. Then Treasury will match interest rate reductions and also shoulder part of principal write-downs to get the payment down to 31%. But if they participate in the program, lenders no longer get to decide which loans they modify--they must use the government’s guidelines.
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