By Alan J. Heavens, The Philadelphia Inquirer
Mar.
5--The Obama administration yesterday offered pages of nitty-gritty
details for its promised $75 billion attack on the nation's foreclosure
epidemic, aimed at saving as many as nine million homeowners from
foreclosure.
The debut of the two-pronged Making Home Affordable
Program, focused on mortgage modification and refinancing, will likely
be delayed for several weeks, though, as lenders prepare for the
anticipated onslaught of borrowers' looking for help.
The
program, first announced Feb. 18, is designed to help up to five
million borrowers refinance to lower rates by June 2010 if their
mortgages are owned by Fannie Mae and Freddie Mac.
It also
provides incentive payments to lenders, to encourage them to modify by
Dec. 31, 2012, existing mortgages for about four million Americans who
will face foreclosure if nothing is done, as well as rewards to
borrowers who pay on time for five years after modification.
Obama's
plan is an ambitious one that "goes much further than previous
proposals to stabilize housing," said Patrick Newport, housing
economist at IHS Global Insight Inc., of Lexington, Mass. "It will help
reduce the number of 'preventable foreclosures.' Whether it will stop
the [home-price] bloodletting, however, time will tell."
Treasury
Department officials reiterated yesterday that the program was for
"responsible" homeowners, eliminating thousands who knowingly bought
properties they could not afford.
"The program is still a
controversial one," said Heather Fernandez, vice president of marketing
for Trulia, the real estate search engine. "The administration is using
the idea of shared responsibility to the American people, who don't
want to pay for borrowers who screwed up -- the hated neighbor who
refinanced to the hilt to build the addition and is now under water."
By
visiting www.FinancialStability.gov or calling 1-888-995-4673, troubled
borrowers can learn about eligibility. The Web site also warns about
using "any person or organization that asks you to pay a fee" for
modifying a delinquent loan.
Many lenders, as well as Fannie Mae
and Freddie Mac, have had foreclosure moratoriums in place since the
program was announced last month. Fannie and Freddie said they would
continue observing the moratorium. Wells Fargo & Co.'s is set to
end March 13. Bank of America Corp. has left the date open-ended.
Lenders' cooperation is critical to the initiative's success.
"The
Obama plan or any other plan will not work if the people implementing
[it] are not making practical and rapid decisions," said Peter
Buchsbaum, branch manager of Arlington Capital Mortgage Corp., of
Jenkintown.
Delaware County homeowner Wilma Ervin fits the
definition of "responsible" -- she is not behind on her mortgage, so
she likely could qualify for the program. She has been trying on her
own for several months to have her mortgage modified, with little
success.
"Personal issues" pushed her into an adjustable-rate
mortgage starting at 9.875 percent interest, she said. Still able to
make her payments but fearing there would be a time when she couldn't,
she called her lender, Wells Fargo, to see if she could modify her loan
to a more reasonable fixed rate.
"Since I haven't been 30 days'
late and my rate adjusted down to 9 percent," Ervin said, Wells Fargo
initially would not even let her apply for modification. It took three
or four calls just to get the modification material.
Wading
through reams of paperwork, she returned the completed documents to
Wells Fargo last week. "It will take two months to happen -- if it
happens," Ervin said.
For most lenders, an overwhelming volume of
modification requests has been creating long processing delays, Bank of
America spokesman Rick Simon said.
In addition, because mortgages
are securitized into packages, several investors must sign off on the
modification of a single loan in the package, he said -- that requires
preparation of a budget showing which option, either modification or
foreclosure, will offer the best financial outcome.
Until now, banks have often been part of the problem, rather than part of the solution for homeowners.
Buchsbaum
said he tried to modify his mother-in-law's loan with Citibank on her
condo in Pompano Beach, Fla., not because she couldn't afford the 6
percent fixed rate, but because the unit was now worth less than the
principal owed. "When I called about it," he said, Citibank "acted as
if I had three heads."
Buchsbaum was interested in reducing the
rate, not the principal or the loan term for his mother-in-law, who
likely could qualify for the new government program.
Features of
the Obama plan would allow extending mortgage terms up to 40 years and
reducing the principal $1,000 a year for five years to reward those who
have made on-time payments after their mortgages were modified.
"Reducing principal is another controversial part of the plan," Trulia's Fernandez said.
Details
of the program came as First American CoreLogic Inc., which tracks home
values and mortgage statistics nationally, announced that 20 percent of
borrowers in the United States were officially "under water" -- meaning
that the value of their property was lower than the balance of their
mortgage.
More than 70 percent of underwater mortgages are in five states: California, Florida, Nevada, Michigan, and Arizona.
The
eight-county Philadelphia area continued to fare better than the nation
as a whole, with just 5.4 percent of borrowers under water, First
American CoreLogic said.
The Obama administration's program
probably will not do anything immediately to help the overall housing
market by loosening credit, said Jacob Benaroya, president and managing
partner of Biltmore Capital Group, a Waldwick, N.J., bulk buyer and
seller of nonperforming mortgage portfolios.
"The banks and
investors will only be likely to extend credit once housing prices
begin to stabilize," Benaroya said. "And the new mortgage-modification
plan will not be able to save every American family with foreclosure
looming over their heads."
Contact staff writer Alan J. Heavens at 215-854-2472 or aheavens@phillynews.com.
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