The government's mortgage modification plan hasn't helped as many defaulting homeowners as was hoped, so the Obama administration will try a different tack to avoid foreclosures
. Instead of trying to keep people in their homes, the government will pay them to leave, The New York Times
Under the new program going into effect April 5, homeowners at risk of defaulting would be allowed to sell for less than they owe. They could also get an additional cash payment.
Banks and other lenders will have to accept the short sale, forgiving the difference between the market price of the home and what they are owed.
The government money would serve as an incentive to bring all the parties to the table. Aside from the $1,000 payments that servicing banks get for loan modifications, they can get another $1,000 toward a second loan if one is made and, for the first time, the homeowners themselves would get a payment of $1,500 to help them relocate.
More than five million households are behind on their mortgages and risk foreclosure, according to the Times.
The goal of the $75 billion Home Affordable Modification Program, introduced last February, was to help banks make temporarily reduced mortgage payments permanent. But administration officials concede the program has been slow to take off and more needs to be done.
By the end of the year, economists predict
2.4 million borrowers could lose their homes. That would be an increase from 2.1 million foreclosures and short sales in 2009.