Mortgage Plan Relies on Incentives, Lacks Muscle

Proposal does does little to address securitized mortgages
By Clay Dillow,  Newser Staff
Posted Feb 19, 2009 9:14 AM CST
President Barack Obama delivers remarks about the home mortgage crisis, Wednesday, Feb. 18, 2009, at Dobson High School in Mesa, Ariz.   (AP Photo/Gerald Herbert)
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(Newser) – The Obama administration’s foreclosure-prevention plan contains more carrots than sticks, relying heavily on incentives designed to prod mortgage servicers to modify at-risk loans, the Wall Street Journal reports. The plan offers monetary rewards to mortgage companies that lower interest rates on delinquent mortgages, and reduces principal for borrowers who stay current on their payments.

"This is the first real significant step to try to push servicers to modify loans rather than just cheerleading," one expert said. Critics say the rescue plan doesn’t encourage reductions in principal for those owing more than their homes are worth, and doesn't address how to push for the modification of securitized, or bundled, mortgages, which are being foreclosed at a much faster pace than loans held by banks.