The Treasury Department announced April 15 that 6 of the country's largest banks were to participate in the program. The banks are Select Portfolio Servicing, Wells Fargo, Saxon Mortgage Services, JPMorgan Chase, GMAC Mortgage and Citigroup.
The Treasury Department is allocating fifty billion dollars to the program. The Dept. of Housing and Urban Development (HUD) is providing the remainder.
Banks participating in the program will be called to reduce the interest rates on family's mortgages to an amount which is no greater than thirty-eight percent of the family's pre-taxable income. Banks may also opt to reduce current loan balances. Following the modification of the loan, the government will then provide enough funds to reduce family's payments to just 31% of their pre-taxable income.
Banks that participate in this plan will receive one thousand dollars per year for every loan modification that they provide. An additional one thousand dollars per year for a three year period will be awarded to banks if the borrower remains current on the modified loan. Banks also are entitled to an extra five hundred dollars is a loan is modified for a borrower before they become delinquent on the loan. The borrower receives $1,500 if their loan is modified in this manner. A big incentive for home owners is that they will receive one thousand dollar a year for a five year period if they remain current on their loan payments. This award must be put toward the principal balance of the loan.
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