Six lenders get funds to modify mortgages

April 16, 2009|Martin Crutsinger and Alan Zibel, Associated Press

WASHINGTON - The Obama administration yesterday named the first six companies participating in a $75 billion program designed to help struggling homeowners avoid foreclosure.

The administration said the companies 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 is working on arrangements with other companies.

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 will offer struggling homeowners the chance to obtain modified loans with lower 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 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.