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| Major banks signed up with Pres. Obama loan modification plan |
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QUESTION: What major banks signed up for Pres. Obama Loan Modification Plan?
Answer: The Treasury Department announced the first six participants to sign up for President Obama’s plan. They include three of the nation’s largest banks: JPMorgan Chase, which will get up to $3.6 billion in subsidy and incentive payments; Wells Fargo, $2.9 billion; and Citigroup, $2 billion. The others are GMAC Mortgage, $633 million; Saxon Mortgage Services, $407 million; and Select Portfolio Servicing, $376 million. Additional loan servicers will be added to the list over time, a Treasury spokesman said.
Question: How will the program work?
Answer: Billed as helping up to 9 million borrowers stay in their homes, the two-part plan calls for servicers to reduce monthly payments to no more than 31 percent of eligible borrowers’ pre-tax income or to refinance eligible mortgages even if the homeowner has little or no equity. The government is allocating $75 billion to subsidize part of payment reduction, as well as provide thousands of dollars in incentives for servicers and borrowers to participate.
Question: Are other banks encouraged to sign up under the plan?
Answer: Yes. The Treasury Department said it is capping the payments to servicers to allow more companies to participate. It is allocating $50 billion to the program, with Fannie Mae, Freddie Mac and the Department of Housing and Urban Development providing the rest.
Question: What can the banks or servicers reduce on the mortgage?
Answer: The modification plan calls for the servicer to reduce interest rates so that the monthly obligation is no more than 38 percent of a borrower’s pre-tax income, and then the government would kick in money to bring payments down to 31 percent of income. Servicers can also reduce the loan balance to achieve these affordability levels. The government will share in the cost, up to the amount the servicer would have received if it had reduced the interest rates.
Question: What loans qualify for modification?
Answer: Only loans where the cost of the foreclosure would be higher than the cost of modification would qualify. Also, Treasury will not provide subsidies to reduce rates to levels below 2 percent.
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