U.S. announces mortgage affordability plan

Reporting from Washington — The latest government-backed effort to stem the country's soaring rate of foreclosures could help several hundred thousand borrowers keep their homes but will do little for 80% of seriously delinquent borrowers, especially in once-hot real estate markets such as California, federal officials said.

The program announced Tuesday, aimed at mortgages owned or guaranteed by government-sponsored Fannie Mae and Freddie Mac, could serve as a model for reworking the huge number of troubled mortgages packaged into securities by Wall Street and other private financial companies, federal and industry officials said.

"This new protocol will be a standard for the industry to quickly move homeowners into long-term sustainable mortgages," said Neel Kashkari, the Treasury Department's interim assistant secretary for economic rescue programs.

But critics question whether the program would have such a broad reach. And Sheila Bair, chairman of the Federal Deposit Insurance Corp., acknowledged that it was far from a comprehensive solution.

"This is a step in the right direction but falls short of what is needed to achieve wide-scale modifications of distressed mortgages," Bair said.

"Given continually rising foreclosures and their impact on the economy, we must address the need for appropriate economic incentives to prevent unnecessary foreclosures."

The new initiative -- part of an industry-led assistance effort known as Hope Now -- is not intended to take the place of other programs to reduce foreclosures, including a refinancing program through the Federal Housing Administration that Congress approved last summer, and a program still being developed that was authorized by the recently enacted $700-billion rescue of the financial industry.

Under the program announced Tuesday, a homeowner who lives in the home in question and misses at least three loan payments could qualify for a streamlined workout designed to reduce the monthly payment to 38% of the borrower's gross income.

That would be accomplished by doing one or more of the following: extending the term of the loan to 40 years; lowering the interest rate temporarily or permanently; or excluding part of the loan balance when calculating the monthly payment.

With the last option, known as principal forbearance, the amount owed by the borrower would not change and would have to be paid back when the house was sold or refinanced.