With a weakening housing market and expiration of the home buyer credit, the Obama
administration and Treasury have stepped up efforts to help struggling home owners facing foreclosure,
including subsidies for the unemployed and borrowers who owe more than their home is worth.
The updated/revised plan would increase payments to lenders that modify second mortgages. Banks'
unwillingness to write down second liens has helped block efforts to prevent foreclosures, and preventedcurrent programs from helping more home owners.
The administration proposed allowing more mortgages to be refinanced into FHA guarantee programs if the borrower is current on the loan. The lender would have to cut the amount owed by at least 10 percent to less than the value of the home. The first and second mortgages combined would have to be no more than 115percent of the home's value.
More than 15 million homeowners fall into this category, according to Moody's Analytics. About 10 million of them owe at least 20 percent more than their house's current value.
The Treasury plan will also help unemployed homeowners reduce mortgage payments for three to six months while they look for work. If homeowners don't find a job in that time, or if they find a new job at a lower salary, they will be evaluated for further assistance.
Further under the new programs, existing incentives will be expanded for borrowers with FHA-guaranteed loans, and relocation assistance payments will be doubled for borrowers who have to move out of residences. Service providers will be required to consider principal write downs when modifying loans and the Treasury will offer incentives for principal reductions.
The revised plan and new programs will get additional funding from the $700 billion Troubled Asset Relief Program and money from $50 billion already set aside for housing programs. $14 billion will be allocated to the FHA guarantee programs.