A new program from the Obama administration aimed at reducing mortgage balances for underwater homeowners is expected to launch on Tuesday.
The Wall Street Journal is reporting that between 500,000 and 1.5 million loans could be modified through the program, the first initiative to target homeowners who are current on their mortgage payments but are at risk of default because they have no equity in their homes.
Under the new “short refinance” program, banks and other creditors that write down mortgages to less than the value of the property can essentially hand off the reduced loan to the government. The process involves refinancing borrowers into loans backed by the Federal Housing Administration.
While the program puts taxpayers at risk—officials estimate one in five loans in the program could default—the government has set aside $14 billion previously earmarked for housing aid from the Troubled Asset Relief Program to cover losses.
The new program, which was announced in March, is starting as the housing market shows signs of renewed trouble and as the Obama administration’s signature Home Affordable Modification Program, or HAMP, falls short of its goals of helping three million homeowners. Half of the 1.3 million borrowers that enrolled in temporary loan modifications have fallen out of HAMP because they didn’t qualify. Only one-third has received permanent modifications.
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Government to Deploy Broader Mortgage Aid