“Only loans where the cost of the foreclosure would be higher than the cost of modification would qualify. Also, Treasury will not provide subsidies to reduce rates to levels below 2%.”
That pretty much sums up almost all underwater homes in CA doesn’t it?
Maybe the reason why banks haven’t massively started foreclosing yet, is they are waiting for this bailout plan. After all, if they foreclose, they know that’s a lot of money lost. With these government bailout plan, at the least the government is going to partially subsidize the modification.
“The modification plan calls for the servicer to reduce interest rates so that the monthly obligation is no more than 38% of a borrower’s pre-tax income, and then the government would kick in money to bring payments down to 31% of income. Servicers can also reduce the loan balance to achieve these affordability levels. The government will share in the cost, up to the amount the servicer would have received if it had reduced the interest rates.”
