Foreclosure Prevention Measures Unveiled

After months of criticism that it hasn't done enough to prevent foreclosures, the Obama administration is announcing a plan to reduce the amount some troubled borrowers owe on their home loans.

The multifaceted effort will let people who owe more on their mortgages than their properties are worth get new loans backed by the Federal Housing Administration, a government agency that insures home loans against default.

That would be funded by $14 billion from the administration's existing $75 billion foreclosure-prevention program. In addition, their existing mortgage companies will be able to receive incentives to lower their principal balances.

The program also includes assistance to help unemployed homeowners keep paying their mortgages.

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Critics have complained the program does little to encourage banks to cut borrowers' principal balances on their primary loans. Nearly one in every three homeowners with a mortgage are "under water" - they owe more than their property is worth - according to Moody's Economy.com.

Obama administration officials have been studying such issues for months. An expansion of its foreclosure-prevention program has long been expected because only 170,000 homeowners have completed the process out of 1.1 million who began it over the past year.

And lawmakers have been frustrated by the lack of results.

"It has failed," said Rep. Jackie Speier, D-Calif., at hearing of the House oversight committee on Thursday. "It has failed miserably and unfortunately we are incapable of saying: OK, this was an experiment, it didn't work, let's try something else."

The program is designed to lower borrowers' monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms up to 40 years. To complete the program, homeowners need to go through a three month trial period and provide proof of their income, plus a letter documenting their financial hardship.

Though $75 billion in funding is available to the more than 100 lenders who have signed up, only a tiny fraction has been spent. Lenders had received $58 million in incentive payments as of last month, according to the Government Accountability Office.