The Obama administration plans to overhaul how it's tackling the foreclosure crisis, in part by requiring lenders to temporarily slash or eliminate monthly mortgage payments for many borrowers who are unemployed, senior officials said Thursday.
Banks and other lenders would have to reduce the payments to no more than 31 percent of a borrower's income, which would typically be their unemployment insurance, for up to six months. In some cases, administration officials said, a lender could allow a borrower to make no payments at all.
The new push, which the White House is scheduled to announce Friday, takes direct aim at the major cause of the current wave of foreclosures: the spike in unemployment.
While the initial mortgage crisis that erupted three years ago resulted from millions of risky home loans that went bad, more recent defaults reflect the country's economic downturn and the inability of jobless borrowers to keep paying.
The administration's newest push also seeks to more aggressively help borrowers who owe more on their mortgages than their properties are worth, by encouraging lenders to cut the loan balances of millions of these distressed homeowners and possibly refinance into loans backed by the Federal Housing Administration. The problem of so-called "underwater" borrowers has bedeviled earlier administration efforts to address the mortgage crisis as home prices plunged.
The new initiatives are expected to take effect over the next half year and will be funded out of money remaining in the $700-billion bailout program for the financial sector, administration officials said. They said no new taxpayer funds would be needed.
The announcement comes as the administration faces increasing pressure from lawmakers and housing advocates to overhaul its foreclosure prevention efforts. So far, fewer than 200,000 borrowers have received permanent loan modifications under its $75-billion marquee program, known as Making Home Affordable.