A new program announced by the Obama Administration today could help homeowners whose homes have declined in value by offering new government-backed loans and getting lenders to reduce the principal owed on homes whose values have fallen by at least 15%. The catch? Investors who own existing mortgages won’t be forced to participate in the new, voluntary program.

According to Consumer Reports Money, the new plan will attempt to aid borrowers by doing the following:

– Putting in place protections against banks foreclosing on homeowners while they are in the midst of applying for a loan modification

– Temporarily reducing mortgage payments to allow borrowers who’ve lost their jobs and are receiving unemployment benefits to remain in their homes while they are job-hunting.

– Requiring lenders to consider writing down principal owed on mortgages for homes that are now worth at least 15 percent less than the original mortgage so that monthly payments would be cut to no more than 31 percent of the homeowner’s monthly income.

– Offering Federal Housing Administration refinancing to borrowers who are current on an existing mortgage, even if it was not originally FHA-insured. For the more than 10 million households who owe more than their houses are worth, this could be a substantial break.

The voluntary nature of the program makes some consumer advocates a little leery. “It’s important to understand that the entire Making Home Affordable program and FHA refinancing system relies on incentives without any mandates—we have carrots, but no sticks,” said Center for Responsible Lending President Michael Calhoun. “If the industry fails to respond promptly to today’s initiative, it will again reinforce the need for stronger action to require loan modifications in order to accelerate this country’s economic recovery.”

New mortgage relief plan for troubled borrowers [Consumer Reports Money]

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