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White House proposes new help for troubled mortgages. Too little, too late?

President Obama's mortgage modification program has helped only a fraction of Americans under water. New measures have been proposed, but they could be costly to taxpayers.

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Hamson McPherson stands outside his home in Staten Island, New York. McPherson has owned his home since 1974 but was recently denied a loan modification request. Three years after the foreclosure crisis began, the process to apply for a loan modification remains a bureaucratic nightmare.

Andrew Burton/Reuters

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President Obama on Friday proposed to sweeten a deal from Washington to entice banks to modify payments, lower loan principal, and expand eligibility in order to help more of the 11 million American families sinking under their mortgages.

The proposed modifications would move the Home Affordable Mortgage Program's sunset date from the end of 2012 to the end of 2013, triple incentives for banks to participate by paying up to 63 cents on the dollar to forgive portions of borrowers' debt, and force banks to consider other debts, including medical bills, in their approval process.

Part of a series of housing relief measures expected as Obama kicks off his 2012 reelection campaign, the proposed expansion of HAMP has been described by some housing experts as too little, too late, especially given that the program has already fallen far short of its goal of helping 4 million homeowners sinking under debt.

RELATED: Home foreclosed? Top 5 ways to survive.

Moreover, Obama's gambit to include mortgage servicers Fannie Mae and Freddie Mac, which hold nearly half of all US mortgages and have received $150 billion in bailout cash since 2008, have raised concerns from their independent government regulator that forcing the lenders to forgive principal could cost taxpayers another $100 billion.

The regulator, Edward DeMarco, told Congress last week that he doubted potentially costly principal modification – in essence, using Treasury funds to pay down the principal of an individual's mortgage – would be more effective than loan forbearance, which means allowing homeowners to lower or postpone payments in order to catch up on their debt. Mr. DeMarco is currently reviewing Obama's proposal.

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