I wrote a story for Time.com about our nation’s new housing-rescue plan, but it’s not online yet. So for now I’ll leave you with a link to this story, the fact sheet from Treasury (it’s a PDF), and a Q&A about how you might benefit (another PDF).
UPDATE: Here’s where you can read my full story.
One thing that struck me while going through the loan-modification part of the plan is how elegantly designed the financial incentives are. Elegant in the way a mathematical proof can be. (You might imagine my surprise when I heard Jamie Dimon using the same word to describe the plan.) Here are a few examples of what I’m talking about:
ii. “Pay for Success” Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. Servicers will also receive “pay for success” fees – awarded monthly as long as the borrower stays current on the loan – of up to $1,000 each year for three years.
iii. Responsible Modification Incentives: Because loan modifications are more likely to succeed if they are made before a borrower misses a payment, the plan will include an incentive payment of $1,500 to mortgage holders and $500 for servicers for modifications made while a borrower at risk of imminent default is still current.
iv. Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time under the modified loan, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance on the mortgage loan. As long as the borrower stays current on his or her payments, he or she can get up to $1,000 each year for five years.
We’ll have to see how it all shakes out—if the behavior Treasury is trying to elicit does, in fact, come to pass. We certainly have a track record of screwing up. But this set-up feels really right to me. Assuming, of course, that you think we should be modifying loans in the first place.
Barbara!