US Is Expanding Mod Program

Washinton-The Treasury Department has expanded its loan modification program by standardizing procedures for short sales and providing incentives for servicers, investors and homeowners to use this last alternative to foreclosure.

Treasury secretary Timothy Geithner also unveiled a $10 billion insurance program to "partially offset" price declines on modified loans during the first two years.

The Home Price Decline Protection Program is designed to address investor fears that home prices will continue to decline.

"It's just an additional incentive to participate in the program," the Treasury secretary told reporters.

The secretary noted that 14 servicers have signed up for the president's Home Affordable Modification program and they have made modification offers to 55,000 borrowers so far.

"This is just the beginning," the secretary said at a press conference. The president is prepared to expand and improve the program to "reach as many Americans as we can," he added.

Housing and Urban Development secretary Shaun Donovan noted that foreclosure starts are increasing but the administration expects the loan modification initiative will keep foreclosure sales on a downward trend.

Mr. Donovan also said the servicers don't have to wait until the loan is delinquent to start a modification.

He stressed that servicers receive higher incentive payments for being pro-active and not waiting until borrowers are behind on their payments.

The Home Price Decline Protection Program is based on a concept developed by the FDIC that provides cash incentives to the investor or servicer based on average local price declines.

Each successful modification is eligible for these incentives, which accumulate each month the modified loan is current and paid at the end of the first and second year.

The short sales alternative is available to homeowners who are eligible for a Home Affordable Modification but can't keep up with the payments.

Treasury is providing $1,000 incentives for servicers and investors to approve a short sale or a deed-in-lieu if the property is not sold after 90 days.

The homeowner receives $1,500 to help with relocation costs.

Treasury also reported that Fannie Mae has purchased 2,150 Home Affordable Refinance loans so far. The mortgage giant has received over 51,000 eligible refinance applications where the loan-to-value ratios are between 80% and 105%. Freddie Mac has purchased 1,500 of these refinanced loans that do not require new mortgage insurance.

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