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After a sluggish and disappointing start, the Obama's $50 billion mortgage relief program is flourishing and has finally picked up speed. According to Treasury Department, nearly one out of five eligible homeowners has been offered help so far.
Launched with great fanfare in March'2009, the "Making Home Affordable" plan had been slow to get going. Lenders had sent out more than 571,000 offers to reduce borrowers' monthly payments. That's 19 percent of the nearly 3 million homeowners' eligible for a loan modification under the plan, up from 15 percent at the end of July. Of the modification offered, about 360,000 borrowers signed up for three-month trial modifications, which are supposed to be extended for five years if the homeowners make their payments on time.
To increase pressure on the industry, lawmakers threatened to revive a failed proposal, opposed by banking lobbyists, to let bankruptcy judges rewrite the terms of a mortgage. Industry executives also say they are planning to work with Obama's administration officials on a possible extension of the program to unemployed homeowners.
Michael Brar, Assistant Treasury Secretary for financial institutions hinted that there were signs the plan is working. Up from 38 mortgage companies in July, 48 companies are now involved in the program. These companies have asked for financial information from almost 2/3rd of eligible borrowers and say they are on track to have 500,000 loan modifications in place by Nov. 1
While lenders say they are adding thousands of workers to modify loans, housing advocates say getting approved is still a time-consuming, bureaucratic nightmare. Many borrowers are also wary of signing up because they are worried their payment will rise after the three-month trial period is over.
This mortgage plan is relying on subsidies to encourage companies to participate. Lenders must agree to reduce the loan payments to 38 percent of a borrower's monthly income. After that, the government and lender split the cost of bringing the payment down to 31 percent. Borrowers can receive rates as low as 2 percent for five years. In order to qualify, eligible borrowers have to provide their most recent tax return and two pay stubs, as well as an "affidavit of financial hardship".