U.S. Launches Mortgage Aid Program
The federal government kicked off a program last week that aims to prevent foreclosures by letting approximately 400,000 troubled homeowners exchange their mortgages for more affordable loans. It will be up to the lenders, rather than borrowers, to decide if they will participate in the program, which requires them to take a loss on the initial loan. This new $300 billion, three-year program is designed to help out borrowers who owe more on their loans than their homes are worth.
To qualify, borrowers must be spending more than 31% of their income on mortgage payments. Loans that were acquired this year are excluded, except for those completed on Jan 1. Borrowers must have made at least six months worth oof payments on their loans.
The program, dubbed 'Hope for Homeowners,' was passed by Congress this summer as part of a massive housing bill. It is one of several government efforts to stem the mortgage crisis.
Executives from Citigroup, JPMorgan Chase, Bank of America and Wells Fargo told lawmakers last month they have been hiring additional workers to put the new program in place.
It is unclear, however, whether or not the financial industry will embrace the plan fully. One concern is that investors in mortgage securities must take an immediate loss and can't recoup their lost money if home prices turn upward again.
Read more about foreclosures and short sales.