Last week, the federal government kicked off a program intended to prevent foreclosures by allowing an estimated 400,000 distressed homeowners to swap out their mortgages for more affordable loans. This new $300 billion, three-year program is intended to assist borrowers who owe more on their loans than their homes are worth.
To qualify, borrowers must be spending more than 31% of their income on mortgage payments each month. Loans that were acquired this year are excluded, except for those completed on Jan 1. Borrowers must have made at least six months worth of payments on their loans.
The program, which has been called 'Hope for Homeowners,' was passed by Congress earlier this summer as part of a huge housing bill. It is one of several government efforts to slow the mortgage crisis.
It will be the decision of the mortgage lenders, as opposed to the borrowers, to choose whether or not they will participate in the program, which requires them to take a loss on the initial loan. Executives from Citigroup, JPMorgan Chase, Bank of America and Wells have been hiring additional workers to put the new program in place.
Want isn’t clear is if the mortgage lending industry will fully adopt the plan. Mortgage securities are concerned about taking immediate losses. Additionally, they will not be able to recoup their lost money if home prices rebound.