NEW YORK (CNNMoney.com) — Obama administration officials are hammering out the details of a $50 billion foreclosure prevention program that the president is set to unveil Wednesday in Arizona, sources said.
Details remain scarce, but officials are looking to help homeowners who are in danger of defaulting on their mortgages, as well as those already behind, according to sources close to the discussions. Until now, most government and industry efforts have centered only on the delinquent.
The administration is under intense pressure to find a solution to the housing crisis, which many experts say is crucial to reviving the overall economy. More than a million homes are already in foreclosure, and more than 2 million more are expected to succumb this year. Obama has long promised that his fix will go beyond the steps taken by his predecessor.
The multipart plan will for the first time commit government money to spur loan modifications. One likely component will be interest-rate subsidies for at-risk borrowers, with the government matching the servicer’s rate reduction. Borrowers would have to take an affordability test to see whether they could handle the monthly payment on the reworked loan.
“Our focus will be on using the full resources of the government to help bring down mortgage payments and to reduce mortgage interest rates,” Treasury Secretary Tim Geithner said last week as he announced the administration’s financial stability plan.
The administration is also expected to ramp up loan modifications of borrowers in default. These modifications would lower monthly payments to more affordable terms – often 31% to 38% of gross monthly income – through reducing interest rates or lengthening the loan’s term.
Several mortgage servicers, as well as mortgage financiers Fannie Mae and Freddie Mac, already have implemented loan modification programs with mixed success. The administration would likely require all banks receiving bailout money to implement such plans.