The Obama administration said Friday that will expand its signature foreclosure-prevention program to try to help those with heavy debt loads avoid losing their homes.
The Home Affordable Modification Program will also be extended through 2013.
The government will triple the financial incentives for private lenders to reduce the principal amount of mortgages for homeowners at risk of losing their homes. And for the first time, the government will offer incentives for principal reductions to government-controlled mortgage giants Fannie Mae and Freddie Mac.
The three-year old program has strived to help those at risk of foreclosure lower their monthly payments. But it has failed to help more than half of those who have applied lower their payments on a permanent basis. Many have complained that the program is a bureaucratic nightmare.
The government has tried several different approaches to help struggling homeowners.
In his State of the Union address Tuesday, President Barack Obama said many Americans have suffered steep losses because of the housing crisis. And while he didn't address the criticism of his administration's efforts, Obama suggested the government could do a better job.
"While government can't fix the problem on its own, responsible homeowners shouldn't have to sit and wait for the housing market to hit bottom to get some relief," Obama said in his speech.
His administration has promised to unveil new legislation in the coming days to allow more homeowners to refinance their mortgages under a separate program, the Home Affordable Refinance Program.
Throughout the history of the $29 billion mortgage modification program, homeowners have complained that they were disqualified after banks lost their documents and failed to return phone calls. Banks have blamed homeowners for failing to submit needed paperwork.
Homeowners who are accepted into the program receive interest rates as low as 2 percent for five years. They can repay their loans over a longer period. The average savings for those who remain in the program is about $500 per month.
More than 1.7 million troubled homeowners received trial modifications over the past two years. Less than half of those who applied, or more than 900,000, have had their mortgage permanently lowered. A majority of the applicants have dropped out of the program altogether.
The Obama administration has blamed some of the nation's biggest mortgage lenders for not doing enough to help Americans avoid foreclosures. In June, the Treasury Department criticized four lenders _ JPMorgan Chase, Bank of America, Wells Fargo and Ocwen Loan Servicing _ and began withholding financial incentives of up to $1,000 per modification.
Wells Fargo, Ocwen and Bank of America got off the list in September and December. JPMorgan Chase has still been cited for rejecting people who were eligible for mortgage modifications.
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