-- Assistance is growing to help financially distressed homeowners, but the nation's mounting caseload of foreclosures and mortgage delinquencies is rising faster.
The Bush administration should have a plan for a systematic approach to help homeowners rework their mortgages within weeks, the Treasury official in charge of implementation of the $700 billion financial rescue package said Thursday.
"The plan is under development now," Treasury's Neel Kashkari told members of the Senate Banking Committee.
One idea under consideration would give government loan guarantees to financial institutions that modify mortgages to make them more affordable.
Federal Deposit Insurance Corp. Chairman Sheila Bair Thursday backed such loan guarantees as a way to keep the housing market from falling further, noting that foreclosures lead to lower prices, which lead to a further drop in prices and more foreclosures.
"We are behind the curve. We are falling behind," Bair said. "There has been some progress, but it has not been enough. We need to act. We need to act quickly. We need to act dramatically to have more wide-scale systematic modifications."
Bair said she hoped there would be a program announced "in the not-too-distant future."
Housing advocates also have been pushing for larger efforts to address foreclosures.
"We're talking about 2 million households going into foreclosure in the next 12 months," says Adam Kruggel, director of the Contra Costa Interfaith Supporting Community Organization.
An advocacy group for homeowners, it is hosting an event in Antioch, Calif., on Monday to launch a national campaign calling for permanent modifications.
Hope Now and the Federal Housing Administration's Hope for Homeowners programs are a good start, he says, "But aren't at the scale that we need — the need is so immense."
Last year, there were 2.2 million foreclosure filings. In September, foreclosure filings — default notices, auction sale notices and bank repossessions — arrived at 265,968 properties nationally, a 12% decrease from August but still 21% higher than in September 2007, according to RealtyTrac.
Meanwhile, interest rates on $29 billion of adjustable-rate mortgages will reset by the end of 2009, raising the average payment by $1,053 a month, according to Fitch Ratings.
Four programs are in place to help borrowers keep their homes: Hope Now, the Federal Housing Administration's Hope for Homeowners and initiatives for borrowers who had Countrywide loans before it was taken over by Bank of America and IndyMac loans before the FDIC took control of it.
They offer three types of help to homeowners:
•Revised payment plan. The servicer and borrower agree to a temporary change in terms.
•Loan modification. A contractual change is made to the loan, usually a lower interest rate or a longer repayment term.
•Refinancing. The current loan is bought out and replaced with a loan bearing different terms.
4 PROGRAMS TRYING TO WORK PROBLEMS OUT WITH HOMEOWNERS
Here is a look at four national programs helping struggling borrowers keep their homes and make mortgage payments more affordable:
HOPE FOR HOMEOWNERS: FHA program started Oct. 1
Borrowers who are stretched thin but up to date on their mortgage payments, in default and even in certain stages of foreclosure are eligible for the most ambitious assistance program operating.
Hope for Homeowners, launched Oct. 1 by the Federal Housing Administration, is intended to help as many as 400,000 homeowers out of a variety of mortgage products.
There are no data on how many borrowers have applied, but at least 80 lenders have signed up, says Lemar Wooley of the Department of Housing and Urban Development, which oversees FHA.
The program is expected to roll out over the next few months.
Unlike in loan modifications, borrowers can reduce the size of their mortgage by refinancing into an FHA loan at 90% of the house's current appraised value, up to $550,440.
"What that translates into is they are giving the homeowner 10% instant equity," says Diamond Bar, Calif., mortgage broker Steve Linnin. The program aims to get monthly payments that are 31% or less of monthly gross income. Other provisions:
• Lenders of secondary loans must agree to release the liens against the home.
• There are no prepayment penalties.
• New second mortgages aren't allowed for the first five years, except for emergency repairs.
• Borrowers must share any appreciation with the FHA, whose share depends on how long the borrower keeps the home.
HOPE NOW ALLIANCE: A private-sector aid effort
The Hope Now Alliance has helped more than 2.3 million homeowners get into more affordable mortgages since its creation a year ago.
A private-sector initiative, the alliance tries to prevent foreclosures by modifying loans and adjusting payment plans. Hope Now's objective is to help homeowners behind in their payments catch up by connecting borrowers with their lenders. The results for homeowners have included missed payments moved to the end of a loan's term, temporary reductions in the interest rate and extended repayment terms.
Participants include mortgage servicers such as Wells Fargo and SunTrust Mortgage, housing counselors such as NeighborWorks and Acorn Housing, as well as trade groups such as the American Bankers Association and the Mortgage Bankers Association.
Pam Scafidi, 59, is one of the lucky ones.
After getting laid off from her job as an executive assistant in December, Scafidi and her husband, who works in office maintenance, went into default on their home in Billerica, Mass.
She met with her lender in September at a foreclosure-prevention workshop held by Hope Now and the Federal Reserve Bank of Boston at Gillette Stadium in Foxborough, Mass.
A representative from the lending company initially offered a temporary reduction on the interest rate — to 5% — but it wasn't enough.
The representative then offered the couple a 3% interest rate for six months, reducing their payments from about $1,800 to $1,062.
"It was wonderful," Scafidi says. "Never in a million years did I expect something like that."
BANK OF AMERICA: States' action wins help
A recent legal settlement is expected to help about 400,000 Countrywide Financial customers win better mortgage terms from the new owner of one of the nation's biggest mortgage lenders.
Under the settlement announced this month between Bank of America and 13 states' attorneys general, Countrywide customers nationally stand to save $8.4 billion from lower interest rates and principals on their mortgages. More states are expected to join the settlement.
BofA, which bought Countrywide this year, settled states' allegations that the lender put borrowers into mortgages they didn't understand and couldn't afford.
Help for eligible Countrywide customers in states joining the settlement includes:
• Interest-rate reductions, depending on the type of mortgage.
• Suspension of foreclosures and a waiver of some fees for certain borrowers who can show they could make payments on a modified loan.
• Relocation assistance. This would be provided to borrowers facing foreclosure who agree to voluntarily leave the property.
• Foreclosure relief. This would be available to borrowers who made three or fewer payments on an owner-occupied home that has been sold in foreclosure or on which they are more than 120 days delinquent. For borrowers eligible for loan modifications, Countrywide will first offer them a chance to refinance through the Federal Housing Administration's Hope for Homeowners Program.
INDYMAC FEDERAL BANK: Good news for some customers
The house that Rafael Martinez bought for $350,000 in 2004 and refinanced for $480,000 in 2006 nearly went on the block for $150,000 last month.
Martinez, of Pittsburg, Calif., had paid $2,500 a month for two years on the house where he lives with his wife and two children. But when his payments rose $300 a month in June, as his construction work was slowing, Martinez couldn't make the payments.
Just as he was going into foreclosure, Martinez got a letter from IndyMac Federal Bank with good news.
He is one of 15,000 IndyMac customers who have received such letters since mid-August notifying them of their eligibility for loan modifications. It's an effort by the Federal Deposit Insurance Corp., which took over IndyMac after the big subprime lender failed in July. Now the agency is hoping that modifying IndyMac's troubled loans will reduce defaults and foreclosures while turning bad loans into successful ones.
The program helps borrowers by lowering the monthly payments, including loan principal, interest, tax and insurance, to no more than 38% of a homeowner's income. That may be done by lowering the interest rate, extending the life of the loan or reducing the principal.
The FDIC's guidelines say IndyMac Federal will make modification offers only to borrowers where doing so will achieve an improved value for IndyMac Federal or for the investors in its whole or securitized loans.
"I'm really glad that IndyMac is trying to help us," Martinez says. "I do make the money to make an affordable payment and feed my family. I hope they can help me."