Fed anounces expanded help to stem foreclosures

The Obama administration on Thursday outlined an expansion of its housing rescue plan that will help homeowners who face foreclosure because they are ineligible for current assistance programs.
Federal officials also provided a report card of sorts on how the home loan modification and refinancing efforts are going since the housing rescue plan was announced in February.

The expanded program includes:

• Foreclosure alternatives. Homeowners unable to qualify for a modification will see a more streamlined process for pursuing short sales and deeds-in-lieu of foreclosures, which transfer a home back to the lender. The goal is to help homeowners avoid a foreclosure that could lead to a severe hit on their credit score.

A short sale is when a home is sold for less than the amount of its remaining mortgage, but lenders agree to consider the debt paid. Lenders would be eligible to receive a federal financial incentive of up to $1,000 if they permit a home to be sold via short sale.

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• Protections for homeowners whose home value has fallen. Under a $10 billion program, new incentives will be provided to lenders to help them make modifications in areas undergoing steep drops in home prices. These incentives will help cover lenders' financial loss.

"If a modification is not possible, we are also announcing steps to encourage the quick private sale or voluntary transfer of property, which will save homeowners money and protect their financial future," Treasury Secretary Tim Geithner said at a press conference.

Since the administration's housing rescue plan was announced, more than 1 million Americans have refinanced.

Mortgage giant Fannie Mae has put more than 233,000 eligible refinance applications through its refinancing program. More than 55,000 loan modifications have been extended to qualifying borrowers.

Fourteen servicers have now signed contracts and begun modifications. These participants account for more than 75% of all loans in the country.

The Obama administration has said it expects up to 9 million homeowners to get help through mortgage refinancing and loan modifications.

But the very complexity of the program has made for a slow start and done little to dampen foreclosures, which have risen as banks ended temporary foreclosure moratoriums. The number of households facing foreclosure rose 32% in April compared with the same month a year earlier, according to RealtyTrac.

"It's been slow. The foreclosure problem is not going away," says Mark Zandi, with Moody's Economy.com. "But I'm hopeful that there will be more modifications taking off this summer and fall. If not, home prices will slide away."

The concern is that mounting foreclosures will depress prices further, causing more homeowners with conventional mortgages to owe more than the homes are worth. That raises the likelihood of more conventional loan holders defaulting.

The rescue program has taken off slowly in part because of its complexity — homeowners seeking a modification, for example, must verify income and write a letter explaining their financial need in seeking a mortgage change.