Home Affordable Modification Program to Expand

The Obama administration plans to expand a program aimed at stemming foreclosures and helping more people to remain in their homes.  Known as the Home Affordable Modification Program, its goal is to convert troubled home loans into new loans with lower monthly payments:

Under a $75 billion Treasury program, companies that agree to lower payments for troubled borrowers collect $1,000 initially from the government for each loan, followed by $1,000 annually for up to three years.

The government support, which is provided from the $700 billion financial bailout program, is aimed at providing cash incentives for mortgage providers to accept smaller mortgage payments rather than foreclosing on homes.

The renewed effort will increase pressure on mortgage companies to accelerate loan modifications two fold. First, by highlighting firms that are lagging in this area. Second, by now waiting until the loan modifications are permanent before paying cash incentives to mortgage companies that lower loan payments.

The program has been in place for a while, but has been heavily criticized for not helping more people. Months after the program's initiation, the foreclosure rate is worsening:

The Congressional Oversight Panel, a committee that monitors spending under Treasury's bailout program, concluded in a report last month that foreclosures are now threatening families who took out conventional, fixed-rate mortgages and put down payments of 10 to 20 percent on homes that would have been within their means in a normal market.

The expanded program will, among other things, make more aid available to struggling borrowers and expand the number of organizations providing that help.

Rising foreclosures not only keep home prices down and depress neighborhoods, but also threaten the country's economic recovery.