Treasury Streamlines Mortgage Modification

The Bush administration Tuesday announced a plan for modifying mortgages to give U.S. homeowners a chance to avoid foreclosure.

The program calls for mortgage giants, the Federal Home Loan Mortgage Corp. and the Federal National Mortgage Association, and other companies to modify the mortgages of homeowners who have missed three mortgage payments and who meet certain criteria. The program stops short of providing direct government aid.

The Washington Post said the goal of the program is to reduce mortgage payments to 38 percent of annual income — extending a loan’s term, reducing interest rates and/or delaying payments on the principal. If a delinquent borrower makes three payments, the terms become permanent.

Federal Housing Finance Agency Director James B. Lockhart III noted foreclosures are up 150 percent in the past two years.

“We need to stop this downward spiral,” Lockhart told a news conference.

“The adoption of this streamlined modification framework is an additional tool … to help avoid preventable foreclosures,” Interim Assistant Secretary for Financial Stability Neel Kashkari said.

“We are experiencing a necessary correction, and the sooner we work through it, the sooner housing can again contribute to our economic growth,” he said.

The Wall Street Journal reported the program is available for loans made before Jan. 1, for homeowners who have not filed for bankruptcy. Participating homeowners need to provide a statement claiming they experienced financial hardship that left them unable to keep up with mortgage payments.

Those servicing accounts will receive $800 for a completed mortgage modification and certain fees will be reimbursed, the Journal reported.

The program includes a trial period of 90 days. Modified loans with up-to-date payments after 90 days will be formally approved.