The Obama administration on Wednesday announced a loan modification program that it says could keep as many as many as 9 million borrowers in their homes.The U.S. Department of the Treasury announced the Making Home Affordable Plan, part of President Barack Obama’s efforts to pump life back into the economy.The plan would create a $75 billion loan modification program that would allow “responsible homeowners” to refinance to interest rates as low as 2 percent.“For many families, a low-cost refinancing could reduce mortgage payments by thousands of dollars per year,” a Treasury Department news release said.The initiative would only help homeowners who commit to make payments to stay in their home. It will not help speculators or house flippers, the department said.The plan will include homeowners at risk of imminent default, even if they are current on their mortgage payments.For a loan modification, lenders would have to reduce the mortgage payments to no more than 38 percent of the borrower’s income. The Treasury Department would share the cost for lenders to cut that debt-to-income ratio to 31 percent.Loans could be extended to up to 40 years.Those lenders who do participate would have to modify all loans, not just the worst ones.Loans originated before Jan. 1 are eligible for the program, which runs through 2012. Homeowners who have an unpaid principal balance of as much as $729,750 can participate.There are also incentives for those who service these loans.They will receive an upfront fee of $1,000 for each eligible modification meeting guidelines established created by the initiative. They will also receive “pay for success” monthly fees – as long as the borrower stays current on the loan – of up to $1,000 each year for three years.The plan also would allow as many as 5 million “responsible homeowners” who have mortgages through Fannie Mae and Freddie Mac to refinance through June 2010.The Treasury Department said it will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities to promote stability and liquidity in the marketplace.
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