Mortgage lenders move closer to refinancing loans under Obama plan

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Following up on President Barack Obama’s announcement two weeks ago, the Treasury Department today began issuing guidelines to lenders and mortgage services on how to implement programs the administration says could keep millions of people in their homes by restructuring their home loans.The foreclosure mitigation plan could especially help in a state like Michigan, which rode the forward edge of the housing crisis and continues to be pummeled with falling home values that have put many people in the situation where they owe far more than their property is currently worth.

Basically, the plan has two components. In the first, if you have a home loan owned or guaranteed by Fannie Mae or Freddie Mac – and they back more than half the loans in the nation – you could refinance to get a low-interest mortgage worth up to 105% of the home’s current value if you owe more than the house is worth.

In the second part of the plan, the administration will push lenders and mortgage servicers – with incentives – to rewrite loans for borrowers at risk of default to a point where a borrower’s monthly mortgage payment won’t exceed 31% of their income.