After months of criticism that it hasn’t done enough to prevent foreclosures, the Obama administration is announcing a plan to reduce the amount some troubled borrowers owe on their home loans.

The multifaceted effort will let people who owe more on their mortgages than their properties are worth get new loans backed by the Federal Housing Administration, a government agency that insures home loans against default.

That would be funded by $14 billion from the administration’s existing $75 billion foreclosure-prevention program. But it could spark criticism that the government is shouldering too much risk by taking on bad loans made during the housing boom. In addition, their existing mortgage companies will be able to receive incentives to lower their principal balances.

The program also includes assistance to help unemployed homeowners keep paying their mortgages.

But the administration cautioned that the plan isn’t intended to stop all foreclosures or assist all troubled homeowners.

A Treasury Department document said, “investors and speculators should not be protected under our efforts, nor should Americans living in million dollar homes or defaulters on vacation homes.”

“Some people simply will not be able to afford to stay in their homes because they bought more than they could afford,” the document said.

Mark Zandi, chief economist at Moody’s Analytics, estimated the plan could help between 1 million and 1.5 million homeowners avoid foreclosure. That compares to 4.5 million that are already in foreclosure proceedings or 90 days delinquent on their mortgages, he said. There are another 10 million homeowners who owe more than their homes are worth, Zandi estimates.

“The changes are wide-ranging and significant and have the real potential for bringing the foreclosure crisis to a much quicker end,” Zandi said.

The plan is the latest effort by the Obama administration to tackle the foreclosure crisis which has continued to grow under its watch. Home foreclosures have soared despite the administration’s effort to prevent foreclosures, a complex and problem-plagued endeavor involving more than 100 mortgage companies. Only 170,000 homeowners have completed that process out of 1.1 million who began it over the past year.

“We remain dubious about government mortgage modification efforts,” wrote Jaret Seiberg, an analyst with Concept Capital’s Washington Research Group. “So far none have lived up to expectations and we see little reason to believe the latest effort will turn out any different.”

The plan announced Friday will also require the mortgage companies participating in the administration’s existing foreclosure prevention program to consider slashing the amount borrowers owe. They will get incentive payments if they do so. Commercial Loan Workout.

Tags: borrowers, foreclosures, homeowners, mortgage companies

This entry was posted on Friday, March 26th, 2010 at 11:46 am and is filed under Debt, Economic Turmoil, Global Economy, Global Financial, Global Recession, US Deficit, US Finance, US Inflation, World Financial. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.