On April 16th, Tami Luhby of CNN reported that the Obama Administration's program to rescue distressed home owners has finally gotten off the ground this week. Due to bureaucracy, it took several weeks to put the plan into action.
The plan calls for loan servicers to reduce interest rates so a family's monthly mortgage obligation is no more than 38% of its pre-tax income. Loan servicers also can reduce loan balances. After the loans are modified, the government then provides enough money to reduce payments to 31% of income.
Participating servicers get $1000 a year for each modification and another $1000 a year for three years if the borrower falls behind in his payments-and the borrower gets $1500. Homeowners also get $1000 a year for five years if they remain current on their payments. The money must be used to reduce their principal balances.