WASHINGTON – The Obama administration on Wednesday named the first six companies participating in a $75 billion program designed to help millions of struggling homeowners avoid foreclosure.
A house for sale has a "Reduced Price" sign in front of it in Dearborn, Michigan, March 27, 2009. US mortgage rates fell to record lows again this week, feeding demand for refinancings, as a result of government efforts to reduce rates to levels that will help the hard-hit housing market begin to recover.
The administration said the companies — including some of the mortgage industry's biggest players — will receive a maximum of $9.9 billion in incentive payments, which are designed to encourage mortgage companies to lower borrowers' monthly bills. The government expects to finish arrangements with other companies in the coming months.
Chase Home Finance, part of JPMorgan Chase & Co., will receive up to $3.6 billion, the largest amount among the six companies.
The other recipients are: Wells Fargo & Co, GMAC Mortgage Inc, Citigroup Inc.'s CitiMortgage unit, Select Portfolio Servicing and Saxon Mortgage Services Inc.
The program, unveiled on March 4, will offer struggling homeowners the chance to obtained modified loans with lower monthly payments. It's being funded by $50 billion out of the government's $700 billion financial rescue program. The remaining $25 billion will come from other government sources.
The refinancing plan is limited to borrowers who owe up to 5 percent more than their home's current value. The administration has estimated the program could help 9 million struggling homeowners avoid foreclosure.
Housing and Urban Development Secretary Shaun Donovan said in an interview Wednesday that mortgage companies "weren't waiting to sign the contracts to get going." The banks, he said, "have already taken hundreds of thousands of applications for refinances and modifications."
Still, many borrowers and consumer groups claim the modifications offered by the lending industry to date don't do enough to help cash-strapped homeowners, despite more than a year of public prodding from regulators.
Fewer than half of loan modifications made at the end of last year actually reduced borrowers' payments by more than 10 percent, data released last month show.
Questions remain about whether the lending industry has ramped up its staff and technology to handle an unprecedented wave of defaults and foreclosures.