Obama Boosting Help For Struggling Homeowners Facing Foreclosure

March 26, 2010— -- With the country's foreclosure crisis worsening, the Obama administration today announced sweeping changes to their embattled $75 billion mortgage modification program in an effort to help people struggling keep their homes.

The changes come amid increasing criticism of the program by Democrats, Republicans and non-partisan government watchdogs.

The administration wants to help two groups of borrowers at risk of losing their homes: the unemployed and the underwater -- who owe more on their mortgage than their home is worth. The new effort is expected to cost about $14 billion, but no new taxpayer dollars will be needed.

Now lenders can reduce the payments for unemployed homeowners for a minimum of three months and a maximum of six months while the borrower looks for work. To qualify for the reduced payments, the homeowners must be eligible for the administration's Home Affordable Modification Program and be receiving unemployment benefits.

The banks would charge no more than 30 percent of the homeowner's unemployment benefits. At the end of that period, the homeowners would then have to make up their payments by extending their loan balance.

The effort to help unemployed borrowers is an attempt to deal with the second wave of the foreclosure crisis. The first wave was primarily subprime borrowers, people who received loans that they were always going to struggle to afford. But with the nation's unemployment rate currently at 9.7 percent, the second wave has been people who lost their jobs during the recession.

Underwater homeowners will also receive help from the White House. As housing prices have plummeted, millions of homeowners have ended up underwater, owing more than the value of their homes. Under the new plan, lenders would reduce a homeowner's mortgage balance by at least 10 percent to get within 15 percent of the new real value of their home, refinancing into loans backed by the government's Federal Housing Administration in an effort to make the loans more affordable.