New loan program aims to keep millions from losing homes

The Tri-City economy has mostly held its own during the national recession, but unexpected medical bills, job loss, divorce and other hardships mean some homeowners are struggling to make mortgage payments.

Loan modifications, which usually involve rearranging the terms or length of the mortgage, are one method the federal government, housing counselors and lenders are using to help people keep their homes.

The administration earlier this year introduced the Making Home Affordable program, which was designed to help 7 million to 9 million homeowners refinance or modify their mortgages to more affordable levels.

More than 230,000 modifications are in the trial stage, according to the Making Home Affordable website. The modification program is on pace to assist 3 millions to 4 million homeowners in the next three years, the site said.

The program is helping, said Liza Beam, housing program director for Consumer Credit Counseling Service in Kennewick.

“Even though mortgage companies are willing to work with people, they’re way behind,” she said.

The process often takes three to six months, Beam said.

About 70 clients in trouble with their mortgage payments have received counseling at CCCS since October, said Laurie Tufford, the agency’s chief executive director. CCCS is approved by the U.S. Department of Housing and Urban Development to provide mortgage counseling services.

It used to be borrowers needed to be 90 days behind on payments before lenders would work to make changes, but now mortgage companies are becoming more lenient, she said,

The Making Home Affordable refinance program targets homeowners who are current on payments but haven’t been able to refinance because their homes values have dropped, according to the program’s website.

“There’s still people who fall through the cracks, but I think it’s making a difference,” Beam said.

Tufford explained that modifications come in a variety of forms.

A forbearance allows missed payments to be divided up into smaller chunks and paid off incrementally, along with regular payments, she said.

Sometimes interest rates are lowered and other times the length of the loan is extended.

There are some cases when homeowners simply can’t afford to keep the house.

“Sometimes keeping the house isn’t the best option.” Beam said.

In an attempt to increase assistance to borrowers, HUD announced last month that its Federal Housing Administration is changing its loan modification program to align with Making Home Affordable, according to the Washington State Department of Financial Institutions.

Through the Helping Families Save Their Homes Act of 2009, qualified FHA borrowers can start the process of modifying the loan before they get drastically behind on payments, said HUD spokesman Lee Jones.

He called the new alignment between FHA’S program and the Making Home Affordable “a bit more aggressive.”

“Making Home Affordable is essentially nothing more than getting the lenders and the borrowers at the same table to change the loan, Jones said. “It allows the borrower to have a conversation with the lender…before they get into real trouble.”

Lenders who are FHA-approved already agree to participate in services to help troubled borrowers who get three months behind in their loans.

One tool to lower monthly payments is a partial claim, which involves lenders allowing borrowers to pay principal and interest on only part of the loan, Jones said.

For a $100,000 loan, for example, a partial claim might allow a borrower to pay on $75,000, while the other $25,000 is deferred until the house is sold, he said.

Jones didn’t know how big the program’s benefits would be, but said its success depends mostly on troubled borrowers making the first move.

And persistence is key, said Dee Taylor, director of the Homeownership Division of the Washington State Housing Finance Commission, which helps direct funding to housing counselors.

“I think they will work,” she said. “You just have to be persistent and really get the lender to cooperate.”

Mark Manthei, a broker for Arboretum Mortgage in Kennewick, also said patience is necessary during the loan modification process. The housing market in Tri-Cities is a bit different than in many areas of the country, as home values have held fairly steady, he said.

The median and average sales prices were down about 1 percent during the first half of the year compared with the same time period in 2008, according to information from the Tri-City Association of Realtors.

A new report from First American CoreLogic, a national real estate data and analysis company, shows 9,454 mortgage properties — or more than 21 percent — in the Tri-Cities are in negative equity, meaning the borrower owes more than the home is worth.

That’s lower than the national rate of more than 32 percent, according to the company.

Arboretum doesn’t perform modifications, Manthei said, but sends clients to lenders for help.

Anyone seeking modification must be able to prove they can afford it, Manthei said. “People aren’t financially prepared for emergencies,” he said, adding that clients of his working through the modification process, all have steady employment.

“The tightening of guidelines is forcing people to stay in more affordable housing,” he said. “Going forward, I think that’s going to help.”

Source: Tri-City Herald

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