Mortgage-modification plan offers help
By Holden Lewis • Bankrate.com

Behind on your mortgage? The federal government might fast track a way to reduce your monthly house payment.

If you're current on your mortgage, and didn't borrow more than you could repay, the federal government thanks you for your responsibility. That and four bucks will buy you a cappuccino.

Under the express modification program, Fannie Mae, Freddie Mac and some lenders will offer to reduce mortgage payments for some homeowners who have fallen at least three months behind. The plan is supposed to go into effect by Dec. 15.

"This program creates a fast-track method of getting troubled borrowers into an affordable mortgage payment," said James Lockhart, head of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac.

The new plan, announced Tuesday, Nov. 11, is intended to catch hundreds of thousands of delinquent borrowers in its net and modify their loans en masse, according to a set of rules. That differs from the current mortgage-modification plan, under which each delinquent borrower is reeled in individually and processed separately, using a combination of rules and subjective judgments.

Who doesn't qualify
Not everyone will qualify for what officials call "streamlined" modifications. The program applies to home loans that are owned by Fannie Mae and Freddie Mac. Those two companies own or guarantee 58 percent of single-family mortgages, and about 20 percent of the mortgages that are delinquent, Lockhart said.

Lockhart urged the owners of the other 80 percent of delinquent mortgages -- the ones that are not held or guaranteed by Fannie or Freddie -- to adopt the federal government's guidelines.

The plan leaves out responsible borrowers who have never fallen behind on their mortgage payments. Jeff Lazerson, president of Mortgage Grader, an online brokerage, said this approach will alienate those responsible borrowers. He thinks everyone should be eligible for a modification.

"They have to go through Fannie and Freddie and tap the Treasury money and guarantee rates at a very low level, both for the mainstream borrower that's not in trouble as well as the borrowers that need loan modifications," Lazerson says. He recommends a rate "in the low 5 percent range, to get everyone's attention. That's going to motivate people to do this."

Victoria Clement, an executive with Grander Financial in Irvine, Calif., called the plan "definitely a step in the right direction." She said the modification plan could help a broad slice of homeowners.