NEW YORK (CNNMoney.com) – Mortgage modifications have a bad rap, yet President Obama is depending on them to stop the foreclosure crisis.
Modifications continue to be pushed as the best way to get struggling borrowers back on their feet. The jury is out on whether modifications work long-term. One recent study showed about half of borrowers with modified loans fell behind within six months.
Still, Obama is giving modifications a central role in his $75 billion foreclosure prevention program.
The program, which starts on Wednesday, calls for loan servicers to lower struggling borrowers' interest rates to 31% of their gross income. The government will subsidize part of the reduction, as well as kick in incentives for the servicers, borrowers and mortgage investors to participate in the modifications.