U.S. tries to reduce more homeowners' mortgages

Sat Jun 4, 2011 10:42pm BST

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* Treasury welcomes ideas to help fix housing market

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By Rachelle Younglai

WASHINGTON, June 4 (Reuters) - The Obama administration wants to help more struggling Americans stay in their homes by reducing the amount they owe on their troubled mortgages, a top Treasury official said on Saturday.

"We are very definitely trying to facilitate more principal reductions," said Timothy Massad, Treasury's acting assistant secretary for financial stability. "It is a very important piece of the overall solution," he said.

The administration is trying through taxpayer-funded programs to prevent homeowners from losing their homes. Nearly $50 billion has been set aside from the $700 billion bank bailout known as the Troubled Asset Relief Program, or TARP, to help distressed homeowners.

Persistently high unemployment and a weak housing market pose a threat to President Barack Obama's re-election prospects next year.

So far, one of the programs has helped some 670,000 distressed homeowners win lower mortgage payments. But that has done very little to help the overall housing market, which remains depressed even as other parts of the economy have started to recover.

A glut of houses for sale, foreclosures, tight credit and little demand have impeded the housing recovery. Recent data showed that home prices dropped below the low seen in April 2009 during the financial crisis.

"This has been a very, very tough housing market as a result of the fact that we went through a horrible financial crisis," Massad told reporters on the sidelines of a foreclosure prevention event in Washington.

One of the administration's programs helps distressed homeowners avoid foreclosure by providing permanent loan modifications.

Another program, now ramping up, gives states that have been the hardest hit by falling home prices funding to help reduce the principal of a borrower's loan, among other things.

"I think those will make a big difference in terms of the problems of unemployed homeowners and falling house prices," said Massad. But he added the process was tricky.

"There are issues of how you do it, making sure it's fair, making sure you don't create the wrong incentives," Massad said.

At the event, dozens of homeowners seeking relief waited to talk to housing counselors and their mortgage servicers, who collect housing payments and negotiate new terms for troubled loans.

One housing counselor expressed frustration with the servicers, saying more people would still be in their homes if their principal was reduced.

"Servicers are not required to do it," said Shaneece Hudson, a mortgage adviser with the National Community Reinvestment Coalition. "Principal reduction is an option (for the servicers.) But they don't do it. They will do everything else first," she said.

More than 120 servicers are participating in the administration's program, including the largest such as Bank of America (BAC.N), Wells Fargo (WFC.N), JPMorgan Chase & Co (JPM.N) and GMAC.

"There is no silver bullet. But I think there are a lot of programs out there that are providing help to people," said Massad. "If anyone has specific ideas that haven't been tried, I am happy to hear about them." (Editing by Peter Cooney)

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