And now for the next round of meddling by the Oompa loompas in Washington
The Obama administration on Friday will announce broad new initiatives to help troubled homeowners, potentially refinancing several million of them into fresh government-backed mortgages with lower payments.
Another element of the new program is meant to temporarily reduce the payments of borrowers who are unemployed and seeking a job. Additionally, the government will encourage lenders to write down the value of loans held by borrowers in modification programs.
The escalation in aid comes as the administration is under rising pressure from Congress to resolve the foreclosure crisis, which is straining the economy and putting millions of Americans at risk of losing their homes. But the new initiatives could well spur protests among those who have kept up their payments and are not in trouble.
The administration’s earlier efforts to stem foreclosures have largely been directed at borrowers who were experiencing financial hardship. But the biggest new initiative, which is also likely to be the most controversial, will involve the government, through the Federal Housing Administration, refinancing loans for borrowers who simply owe more than their houses are worth.
Many details of the administration’s plan remained unclear Thursday night, including the precise scope of the new program and the number of homeowners who might be likely to qualify.
One administration official cautioned that the investors might not be willing to volunteer any loans from borrowers that seemed solvent. That could set up a battle between borrowers and investors.
This much was clear, however: the plan, if successful, could put taxpayers at increased risk. If many additional borrowers move into F.H.A. loans, a renewed downturn in the housing market could send that government agency into the red.
The F.H.A. has already expanded its mortgage-guarantee program substantially in the last three years as the housing crisis deepened. It now insures more than six million borrowers, many of whom made minimal down payments and are now underwater.
Sources said the agency would use $14 billion in funds from the Troubled Asset Relief Program, some of which it could dangle in front of financial institutions as incentives to participate.
Another major element of the program, according to several people who described it, will be to encourage lenders to write down the value of loans for borrowers in modification programs. Until now, the government’s modification efforts have focused on lowering interest rates.
A person briefed on the new plan said the number of underwater borrowers who qualified for the plan could be in the millions. The government is not planning to solicit loans for the program, stressing that it is voluntary.
The administration recognizes that some people’s finances have deteriorated so far that they are beyond help, the person said. People in that situation simply cannot afford the houses they are living in, the person said, even if the mortgages were reduced.
“All these programs are geared toward people for whom it makes sense, for whom it’s workable when all is said and done,” the person said. “Some people are too far gone.”