WASHINGTON - The government may let more borrowers qualify for a $300 billion program designed to let troubled homeowners swap risky loans for more affordable ones, a top Bush administration official said Wednesday.
The program, included in a housing bill passed by lawmakers over the summer, was launched Oct. 1. But there are concerns that lenders won't participate because they have to voluntarily reduce the value of a loan and take the loss.
"We're concerned that the program -- as constructed today -- is limiting people's availability," Department of Housing and Urban Development Secretary Steve Preston said.
In the "Hope for Homeowners" plan's current design, lenders have to take big losses, absorbing the difference between a mortgage's current value and the new loan for 90 percent of the house's appraised value. One potential change is to make the new loan around 97 percent of current home value, thus requiring lenders to take smaller losses, Preston said.
Making that change and others "would open up participation in the program," he said.
The Hope for Homeowners program was designed by Democratic lawmakers who were trying to respond to the mortgage crisis. The Congressional Budget Office projected over the summer that the program would let 400,000 troubled homeowners swap risky loans for conventional 30-year fixed-rate loans with lower rates.
But early results are discouraging: The government received only 42 applications in the program's first two weeks, according to the Federal Housing Administration.
To participate, homeowners can try to persuade their lenders to join the program, but the decision is ultimately up to the lender.
The banking industry appears likely to favor options that don't require an immediate reduction in principal, such as deferring payments, allowing partial payments and lowering interest rates.