Loan Modification plan undergoes changes from Obama Administration

In order to help homeowners avoid foreclosure through Loan Modifications, the Obama administration recently added two more elements to its homeowner assistance program, offering to help more borrowers and encouraging investors to offload more of their riskiest morgages onto the taxpayers.

The original Making Home Affordable program that the Treasure Department announced in early 2009, enabled borrowers with troubled loans to refinance loans. It also provided subsidies to encourage lenders, loan servicing companies and borrowers to agree to temporaty loan modifications taht reduced monthly payments to 31% of the borrower’s income.

The program did not address all situations though. It did not do anything about second mortages and did not address many troubled borrower with loans that wer worth 95% or less of the amount they owed.

With the new plan borrowers with second mortgages will be able to get a temporary cut in interest rates on both their loans. This can give borrowers the leverage they need to make payments without a second mortage holding them under water.

The other tweak announced would integrate a new version of the Hope for Homeowners program into the loan modification efforts. That program calls for lenders to write down a troubled borrower’s debt until it’s a bit less than the value of the house, then refinance the mortgage into a loan guaranteed by the Federal Housing Administration.

This is all an effort an avoid foreclosure. It is truly a race against time, as the longer it takes for the plan to get legs, the more homeowners will be without a home.  Some people object to the idea of any homeowners being bailed out, so they are almost rooting that the bill gets caught up in the legal system. Regardless, expect the Obama Administration to get their way and homeowners to find some relief in the next few months.