Federal officials release details of $75 billion loan modification and refinancing programs. Borrowers can start contacting loan servicers
The multipronged fix calls for companies to help as many 4 million struggling borrowers by modifying loans so monthly payments are no more than 31% of monthly gross income. Separately, homeowners who haven't missed a payment can refinance into lower-cost loans even if they have little or no equity. This is expected to help up to 5 million homeowners.
The $75 billion loan modification plan will provide incentives to borrowers and loan servicers and investors to spur mortgage modifications. The government will also subsidize interest rate reductions to get borrowers to affordable monthly payments.
"This plan will help make home ownership more affordable for nine million American families and in doing so, help to stop the damaging impact that declining home prices have on all Americans," said Housing Secretary Shaun Donovan.
Borrowers can now contact their servicers to see whether they are eligible for assistance. Federal officials will promote the program at homeownership events nationwide.
The administration Wednesday released additional eligibility criteria and program guidelines.
The loan modification plan focuses on people who are behind in their payments or are at risk of default.
Federal officials clarified the definition of who is "at risk," defining it as those: suffering serious hardships, declines in income or increase in expenses; facing an interest rate hike; having high mortgage debt compared to income; owing more than their house is worth, or demonstrating other reasons for being close to default.
To participate in the loan modification plan, borrowers must:
- have obtained their mortgage before Jan. 1, 2009;
- have a primary mortgage of less than $729,500;
- live in the property;
- fully document their income by providing tax returns and pay stubs;
- sign a statement of financial hardship; and
- go for counseling if their total household debt -- including auto loans, credit cards and alimony -- totals more than 55% of their income.
The modification program will be in effect until the end of 2012, but loans can only be adjusted once. 
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