The Obama Administrationâ€™s program to rescue distressed home owners got off the ground this week. The program was announced on Feb. 18, but it took several weeks to put the bureaucracy in place.
Six of the nationâ€™s largest banks signed up to participate, the Treasury Department announced Wednesday. They are JPMorgan Chase, Wells Fargo, Citigroup, GMAC Mortgage, Saxon Mortgage Services, and Select Portfolio Servicing.
Treasury says it is allocating $50 billion to the program. The Department of Housing and Urban Development will provide the rest.
The plan calls for loan servicers to reduce interest rates so a familyâ€™s monthly mortgage obligation is no more than 38 percent 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 percent of income.
Participating servicers get $1,000 a year for each modification and another $1,000 a year for three years if the borrower remains current. Servicers get an extra $500 if they do the modifications before the borrower falls behind in his paymentsâ€”and the borrower gets $1,500. Also, homeowners get $1,000 a year for five years if they remain current on their payments. The money must be used to reduce their principal balances.
Source: CNN, Tami Luhby