Treasury says mortgage plan may help 9 million

WASHINGTON (MarketWatch) -- The Treasury Department said Wednesday that its new mortgage relief plan would help up to 9 million homeowners avoid foreclosure.
The agency released new details of the plan and said servicers could get to work immediately reducing mortgage payments.

"Today, we are providing servicers with the details they need to begin helping eligible borrowers," Treasury Secretary Timothy Geithner said in a statement.
The guidelines implement financial incentives for mortgage lenders to modify existing first mortgages and set standard industry practice.
There are also incentives for removing second liens on loans modified under this program.

Under one part of the plan, homeowners who have an existing mortgage owned by Fannie Mae or Freddie Mac will be able to refinance even if their current loan-to-value ratio is above 80%. The department says that 4 to 5 million homeowners will be able to take advantage of this plan.
Under the new rules, mortgages with an unpaid principal balance of up to $729,750 are eligible for the program.
No investor-owned properties can participate.

The plan is scheduled to expire by the end of 2012. Servicers will receive an up-front fee of $1,000 for each modification, plus "pay for success" fees on still-performing loans of $1,000 per year.
If homeowners make their payments on time, they are eligible for up to $1,000 of principal reduction payments each year for up to five years.
There are bonus fees if modifications are made while a homeowner is still current on mortgage payments.

The Treasury plan includes a second program that it says will help up to four million homeowners who have seen their mortgage payments skyrocket but cannot sell their homes because prices have fallen so significantly.
Under the plan, lenders must reduce monthly payments on mortgages so that the borrower's payment is no greater than 38% of income.

The government will share the burden of reducing payments to 31% of income.
To reach the target, interest payments will first be reduced down to as low as 2%.
If the rate is still above 31%, then the life of the loan can be extended up to 40 years. Only then would the plan forbear principal at no interest to meet the target.