$9.9 Billion for Banks under Government Foreclosures Program

Now six of the country’s largest banks have a budget of $9.9 billion to motivate them to help distressed homeowners under the government foreclosed homes program dubbed Making Home Affordable by President Obama’s administration.

The six banks are JPMorgan’s Chase Home Finance, which was allotted with up to $3.6 billion; Wells Fargo, with up to $2.9 billion; Citigroup’s CitiMortgage, with up to $2.1 billion; GMAC Mortgage, with up to $633 million; Morgan Stanley’s Saxon Mortgage, with up to $407 million; and the Select Servicing of Credit Suisse, with up to $376 million.

According to estimates by housing analysts, the banks could help more than 2.2 million American homeowners and earn up to $4,500 for every loan modified under this foreclosure prevention program.

The loan modification scheme under the government foreclosures program was designed to help 4 million distressed homeowners through three ways: reduction of the interest rate, extension of the repayment period and reduction of the principal loan balance. These three ways will put borrowers’ monthly payments to affordable levels.

All in all, the Treasury has budgeted $75 billion to motivate mortgage lenders to modify troubled loans under the government foreclosures program. $50 billion comes from the Troubled Asset Relief Program (TARP), which was funded in 2008 under the Bush administration, while $25 billion comes from the Housing and Economic Recovery Act (HERA), which was also passed by Congress in 2008 primarily to help solve the subprime mortgage crisis.

Under the program launched in February, mortgage lenders are given a cash incentive of $1,000 for every loan modification completed and an additional incentive of $500 for each borrower saved from getting in default by more than 2 months. Lenders are further motivated to sustain their assistance to borrowers by giving $1,000 for each year that borrowers keep up with their payments, with this incentive available up to 3 years.

The loan modification incentive scheme under the government foreclosures program is available only to mortgage loans guaranteed or owned by the federally-run mortgage firms Freddie Mac and Fannie Mae. Also, the initial cash incentives would be given to the lenders only after the loans are modified and paid for by the borrowers for 3 months.

Meanwhile, homeowners who are worried they will lose their homes either to private lender or government foreclosures are urged to visit the web site www.makinghomeaffordable.gov and check if they are eligible for loan modification or loan refinancing schemes under the government foreclosures program and get resources on how they can contact and ask for help from HUD-certified counselors for free.

By Cassiano Travareli