Most of the new details on Wednesday applied to the $75 billion modification program, aimed at keeping up to four million struggling borrowers in their homes. Notably, it was revealed that the program applies to loans with unpaid principal balances of up to $729,750, for an occupied single-family home. There was broad concern the figure would be set too low to help many in a high-cost housing state like California or especially the Bay Area, where as recently as the summer of 2006 median home prices exceeded that threshold in four of nine counties, according to San Diego research firm MDA DataQuick.
"They raised the limit," said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange. "That's good news for Californians."
Under the modification program, participating loan servicers will be required to evaluate mortgages at risk of default to determine if they qualify for the program.
If so, those companies will have to reduce total monthly housing payments to 31 percent of the borrower's income, by reducing the interest rate to as low as 2 percent for five years, extending terms up to 40 years and forgiving part of the principal. Once the lender reaches the 38 percent income threshold, the government will kick in matching funds to help lower it to 31 percent.
To qualify for the program, which runs through 2012, borrowers will have to provide their most recent tax return, two pay stubs and prove "hardship," such an increasing housing payments or decreasing income.
Housing plan loan limit could help Californians