WASHINGTON - The Obama Administration will announce today a plan to reduce the amount some troubled borrowers owe on their home loans, after months of criticism that it hasn't done enough to prevent foreclosures.
The effort will let people who owe more on their mortgages than their properties are worth get new loans backed by the Federal Housing Administration, people briefed on the plan said. It would be funded by $14 billion from the administration's $75 billion foreclosure-prevention program.
The plan will require the more than 100 mortgage companies participating in the administration's foreclosure prevention program to consider slashing the amount borrowers owe. They will get incentive payments if they do so.
It also will include three to six months of temporary aid for borrowers who have lost their jobs. And there will be payments designed to give banks an incentive to reduce payments or eliminate second mortgages such as home equity loans, a problem that has blocked many loan modifications.
The changes "will better assist responsible homeowners who have been affected by the economic crisis through no fault of their own," an administration official said.
Nearly one in every three homeowners owes more than their property is worth, according to Moody's Economy.com.