Washington – Fresh on the heels of criticism for its handling of the mortgage crisis, the Obama administration Friday will announce new measures to keep struggling homeowners in their homes, especially those who now owe more than their houses are worth.
Administration officials said late Thursday that President Barack Obama is shifting gears on a number of efforts to quell the housing crisis, including temporary relief from payments for borrowers with good payment histories who’ve lost their jobs in the recession.
The announcement comes days after a special inspector general monitoring the use of taxpayer bailout money issued a scathing report criticizing the administration’s mortgage modification efforts.
The administration plans a formal rollout of the changes Friday, but after financial markets closed Thursday, the White House began putting out word that a change in approach was forthcoming.
“These program adjustments will better assist responsible homeowners who have been affected by the economic crisis through no fault of their own,” said a White House official, on the condition of anonymity to speak freely. “The program modifications will expand flexibility for mortgage servicers and originators to assist more unemployed homeowners and to help more people who owe more on their mortgage than their home is worth because their local markets saw large declines in home values.”
The administration will use money from the $700 billion Troubled Asset Relief Program to encourage banks to take losses on mortgages that are valued above the homes’ current prices. This money will also be used to encourage holders of second liens, often called piggyback loans, to extinguish their claims on troubled mortgages.
The administration already has such a program in place for second liens, but will be doubling what it offers to lenders in this category to help get them out of the way when modifying a mortgage.
Some of the White House thinking is similar to proposals offered by Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee. He was briefed on the plan Thursday.
Frank has proposed making loans from the TARP program to unemployed homeowners with good credit histories. He also shepherded legislation through Congress several years ago to pay banks that were willing to write off large portions of underwater mortgages, or those that exceed the home’s underlying value. Lenders showed little interest in taking such losses, however.
Since then, the housing crisis has deepened as the recession piled foreclosures from job losses on top of the foreclosures tied to weak loans, often made to borrowers with the weakest credit.
“We have been trying to figure out this foreclosure issue since the day it started, and every little bit helps,” said Steve Adamske, Frank’s spokesman. “We will take a hard look at this, and we’re glad the administration keeps coming up with new solutions to a problem that’s vexed us for awhile.”
The administration has pushed lenders to modify mortgages of struggling homeowners to get payments to a manageable level of 31 percent of their pre-tax income. Yet after a year of trying, the administration can point to fewer than 200,000 permanent modifications. That’s better than the Bush administration’s record, but far from something to cheer about, especially in a midterm election year.
The administration’s shift follows an announcement by Bank of America this week that the Charlotte, N.C., company sought to forgive $3 billion that some 45,000 homeowners owe on their mortgages.