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...part of the program has tight restrictions: homeowners must be current on their mortgage payments, live in the home, have a FICO score of at least 500 and qualify for a standard FHA-backed loan once the principal is reduced. Those who get a modified loan must make full monthly payments for three years for the principal to be reduced permanently. The high standards for these loan modifications suggest that the Administration hopes to head off another wave of loan defaults and foreclosures by providing help earlier in the process...
Treasury Assistant Secretary Michael Barr says the principal-reduction program is voluntary, not mandatory, and that there's no guarantee homeowners will not default on the new refinanced loans. "We don't want to be overly optimistic about that," said Barr during a briefing on Friday. "Modifications are hard - they're done for people who are struggling with their mortgage, and so you expect a lot of people not to make it - and a lot of people won't make it." However, he says two-thirds of the people in the government's present loan-modification program are current...
Treasury officials emphasize that the program will not save every troubled homeowner. They say it targets 3 million to 4 million of the 12 million who are expected to wind up in foreclosure in the next three years...
...effective in modifying loans than past efforts that involved only interest-rate cuts and extensions of loan terms. "The loan-modification effort has not been very successful to this point in time," he says. However, he believes that only a small fraction of troubled homeowners will qualify for the program. "It will probably help some additional portion of the public, but I'm not sure it's enough to make a difference [in the overall housing recovery]," says Curran...
Rick Sharga, vice president of marketing for RealtyTrac, is cautiously optimistic that the program will help slow foreclosures. "One of the things that's prevented more success on these [loan-modification] programs is, we've had a principal-balance problem, and this program, on the face, would seem to resolve that." He says it's long been believed that homeowners would be able to support mortgage if they were based on current market values. Right now, many can't refinance because their loans are worth more than their houses, he says...