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U.S. expanding foreclosure prevention plan

May 1, 2009

Yesterday, the Obama administration announced additional efforts to stem foreclosures by offering lenders and homeowners incentives to cut payments on second mortgages, write down balances on first mortgages that are underwater, and repay loans in a timely fashion.  The U.S. Treasury Dept. also wants lenders and their customer-service agents to agree to modify both first and second mortgages as part of a comprehensive solution.

Details of the foreclosure prevention plan include:

  • Decreasing second-mortgage interest rates to as low as 1 percent for five years for some borrowers.
  • Reviving a Federal Housing Administration effort to persuade lenders to reduce loan balances so that borrowers again have equity in their homes.
  • Funding from the program will come from a previously authorized $50 billion allocation from the $700-billion Treasury Dept. rescue fund established by Congress last year.
  • The plan would provide cash incentives to both loan officers and borrowers for successful second-mortgage modifications.  A loan officer would receive $500 upfront, plus $250 annually for up to three years as long as the loan remains current.  Borrowers who make payments on time will receive $250 a year for up to five years.

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