President Obama’s loan modification program is finally getting underway.

The Treasury Department, led by Ben Bernanke, recently announced the first six participants to sign up for the new plan. Three of the largest American banks, JP Morgan Chase, Wells Fargo, and Citigroup figure among these. JP Morgan Chase will receive up to $3.6 billion in subsidy and incentive funds, while Wells Fargo will receive a close $2.9 billion and Citigroup $2 billion. The other three banks, GMAC Mortgage, Saxon Mortgage Services, and Select Portfolio Servicing, will receive up to $633 million, $407 million, and $376 million respectively.

Treasury spokespersons have promised that more loan servicers will be added to the list over time.

Some of the major servicers, including JPMorgan Chase and Wells Fargo, already began modifying loans with the aid of the government initiative earlier in the month. CitiMortgage has followed suit and has already begun helping homeowners in need. President Obama announced that the government would be instrumental in helping major loan modification servicers on February 18th, but it has taken the government weeks to actually clarify the terms of the program. In the same vein, mortgage servicers have been slow to begin accepting applications.

The ultimate goal of the government’s program is to help 9 million people to avoid foreclosure. One aspect of the plan is to bring mortgage payments down to 31% of borrowers’ pre-tax income or to provide the funding for refinancing of mortages, even if they have little to no equity. The government has directed $75 billion towards subsidizing mortgages to meet these goals, along with thousands of dollars towards giving incentives to loan modification servicers.

The government expects that servicers will reduce interests so that monthly payment is no greater than 38% of a borrower’s pre-tax income. Money from the Treasury Department will help to reduce payments to 31% of the borrower’s pre-tax income, and the government will reimburse the servicers up to the amount the servicer would have received if it had chosen to reduce interest rates.

However, only loans which would be more costly to foreclose on than modify actually qualify for the program. The Treasury has refused to subsidize loans to reduce rates below 2%. The government will be paying handsome incentives to loan modification servicers. The government program promises servicers $1,000 for every modification and another $1,000 per year for up to three years if the borrower pays on time. Homeowners will receive $1,000 a year for up to five years as long as they do not fall behind, and they are expected to use these funds to help to reduce their loan principal.

The Treasury Department used public data about mortgages completed by the participating servicers to determine caps for the incentives. The Treasury’s spokesman, Andrew Williams, is upbeat about the government’s ability to meet the demands of homeowners in need: “We’re confident we’ll have enough money”, he told the press recently.

Homeowners in need of a mortgage loan modification are encouraged to contact a HUD representative or their lender prior to engaging the services of Loan Modification Zoom, and are encouraged to retain counsel, through Modification Zoom or another reputable loss mitigation firm if necessary to avoid foreclosure.