There have been so many different proposals and announcements regarding government bailout plans that it’s hard to keep them all straight. In February, President Obama announced one such plan that would help homeowners on the brink of foreclosure. The plan modifies mortgages so that homeowners have their payments reduced to no more than 31% of their income before taxes. As of Wednesday, the plan is finally entering the implementation phase.

Six financial institutions are offering loan modifications initially, with more expected to follow. The six on board currently include JP Morgan Chase, Wells Fargo, and Citigroup among major national banks, along with GMAC Mortgage, Saxon Mortgage Services, and Select Portfolio Servicing. These financial institutions will receive subsidies funded by the Treasury, Fannie Mae, and Freddie Mac to help make up for the lost revenue from collecting less on the modified loans.

A Wells Fargo spokesperson said, “We view this modification program as yet another incremental opportunity for thousands of homeowners to preserve and maintain the dream of homeownership.”

The Obama administration has said that this could help up to 9 million distressed homeowners to stay in their homes. The homeowners are eagerly filling out applications, but have been disappointed that it has taken nearly two months for the plan to take shape after its initial announcement.

To ensure that the incentives and subsidies are spread throughout the financial industry, there will be a cap placed on how much each financial institution is allowed to receive. There will also be requirements regarding which mortgage loans qualify to take part in the program. If the losses associated with foreclosure would be larger than the losses that result from modifying the loan it will qualify to participate in the program. There will still be foreclosures however; this program just provides an alternative that can be explored instead of jumping straight into the foreclosure process.

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Tags: Bailout, distressed homeowners, foreclosure, mortgage

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