Obama expands housing plan

May 14, 2009 3:03:31 PM PDT
The Obama administration expanded its $50 billion mortgage aid program on Thursday, announcing new measures that would help homeowners avoid a foreclosure if they don't qualify for other assistance. The initiatives are intended to streamline the process of selling a home that is worth less than the mortgage, or transfer ownership of a home to the lender. Both options will still ding the homeowner's credit score, but less than a foreclosure.

Since the program, called Making Home Affordable, was launched in March, Mortgage companies have made more than 55,000 offers to modify borrowers' loans.

"We're seeing a lot of progress in a very short period of time," Treasury Secretary Timothy Geithner said.

Officials estimate up to 4 million borrowers will get their loans modified, but housing experts like Mark Zandi of Moody's Economy.com expect the number will be less than half of that.

And while the number of success stories is growing, it pales compared with the rate of new foreclosures, and many housing counselors across the country are complaining that the program has been slow getting off the ground.

"Our experience at the ground level has been, so far, frustrating," said Michael van Zalingen, director of homeownership at Neighborhood Housing Services of Chicago, a counseling group.

Entry-level employees at mortgage companies, he said, are either steering borrowers away from the plan or are entirely unaware of it.

There are, of course, lucky homeowners like Daniel Iturriaga, 45, a warehouse worker from Compton, Calif. Working with a counselor from Springboard, a nonprofit counseling group, Iturriaga was able to get JPMorgan Chase & Co. and mortgage finance company Fannie Mae to modify his home loan.

He's going from a monthly payment of about $2,300 to about $1,275. After a three-month trial period, it should be final in mid-June.

"It's a long process, but I still have a little hope to stay in my home" said Iturriaga, who bought his home for about $400,000 in 2005 and has seen houses on the same block sell for about half as much. "I'm pretty happy."

Nevertheless, Guy Cecala, publisher of trade publication Inside Mortgage Finance, doesn't expect to see large volumes of loan modifications before July or August. "The basic problem is that the program is very complicated and involved to set up," Cecala said.

The government program, requires numerous changes to how the mortgage industry does business. To get a loan modification, borrowers must provide proof of their income and send in a letter stating why they need help.

Since the program involves taxpayer dollars, the lending industry needs to make sure it sets up the program correctly, said Faith Schwartz, executive director of Hope Now, a mortgage industry group formed in response to the foreclosure crisis. "This is a very well-thought out plan," she said. "People have to be a little bit patient."

But Rose Inman is out of patience and out of time. Aurora Loan Services is set to foreclosure on her home overlooking Seattle's Puget Sound on Friday.

Inman, 58, was laid off from a manufacturing company, and then from the City of Seattle. Since then, she's been working as a human resources consultant, but making much less money.

Despite numerous calls, e-mails and letters, she says she's only been able to have one phone conversation with a company representative.

"It's like this huge, concrete thick wall that you cannot get through," she said.

Last week, Aurora joined the Obama administration's loan modification program. The Colorado-based company is in line for nearly $800 million in government incentives to modify borrowers' home loans.

"We offer a wide range of foreclosure prevention options to our customers," Deborah Munies, an Aurora spokesman, said in an e-mail, while declining to comment on Inman's case. "In cases where the customer has the ability and willingness to make a reasonable monthly payment, we make every effort to avoid foreclosure. Foreclosure is pursued only when a variety of other workout options have not been successful."

So far, 14 companies that serve about three quarters of the mortgage market have signed up and will be paid for each loan they modify.

The initiatives announced Thursday are aimed at ineligible homeowners. For borrowers who are unemployed or owe significantly more than their homes are worth, there are generally two options to avoid foreclosure.

The homeowner can sign the property title over to the lender in what is known as a deed in lieu of foreclosure. Or, with the lender's permission, the homeowner can sell the property for less than the value of the loan a so-called "short sale."

Mortgage companies would get up to $1,000 and borrowers would get up to $1,500 in relocation costs.

For months, real estate agents have complained that it's difficult to get lenders to agree to a short sale, and the process takes so long that many deals fall apart.

"They do not have their institutions staffed properly, that's the problem, "said Lisa Gregory, a real estate agent with Prudential California Realty in Del Mar, Calif. "I don't think encouraging these processors with an extra $1,000 will help because they aren't motivated," she said, but added that "this certainly sounds better than nothing."