STEMMING FORECLOSURES: The program helps struggling households by working with lenders and providing money.
06:55 PM PDT on Wednesday, June 23, 2010
By LESLIE BERKMAN
In another effort to stem foreclosures, the Obama administration on Wednesday approved plans to spend $1.5 billion on the five states hardest hit by mortgage failures and unemployment, including nearly $700 million to California, which will receive the largest allocation.
California’s four-pronged “Keep Your Home” program, which will be administered by the California Housing Finance Agency, is designed to help struggling households keep their homes by working with lenders to make principal reductions on the mortgages.
Also the state’s plan would provide temporary mortgage payment assistance up to $1,500 a month to the unemployed and those whose incomes have been cut in the economic downturn, make overdue mortgage payments for other homeowners at risk of foreclosure and assist those who cannot afford to keep their homes with one-time cash payments of up to $5,000 to help with such expenses as moving costs, security deposits and rent.
While the new state program generally will be available for low- to moderate-income people who occupy their homes, eligibility rules are still being refined, said Evan Gerberding, Keep Your Home marketing manager for the California Housing Finance Agency. She said it is estimated that the program will enable about 40,000 households to save their homes from foreclosure.
Applications for the program will not be accepted until a screening process is ready, which will be sometime before Nov. 1, Gerberding said.
The Keep Your Home plan drew mixed reaction from housing and mortgage experts, some of whom applauded the effort and others who said it will fall far short of solving the foreclosure problem and could create animosity among those at risk of foreclosure who don’t meet the criteria or aren’t able to qualify before the funds run out.
“Don’t throw a little money at a big problem because you only create a worse problem of pitting people against one another,” said Rose Mayes, executive director of the Fair Housing Council of Riverside County.
Industry experts stressed that the program is not a cure-all and its success will depend on the cooperation of the lending industry. Inland Empire Economist John Husing, said is “going in the right direction” but not far enough.
He said the only way to make meaningful strides in solving homeowner distress in Riverside and San Bernardino counties is to reduce the principal balances on mortgages, but that the state’s $50,000 cap on principal forgiveness under the new program will make it unworkable for too many Inland residents.
Husing said because home prices in Riverside and San Bernardino counties dropped 55 to 60 percent, it left many mortgage holders in the region “more than $50,000 under water.”
Gerberding said the state will be asking lenders to match the state’s spending on principal reduction dollar-for-dollar, which means in some cases a mortgage could be lowered by as much as $100,000.
Another limitation of the principal reduction program is that it will only lower mortgages for a purchase loan or one that was refinanced for a lower interest rate, Gerberding said. Principal reductions will not be available to borrowers who refinanced mortgages to cash out funds for any other purpose.
John Marcell, an Upland mortgage broker and president of the education and research foundation of the California Association of Mortgage Brokers, called the state’s principal reduction measure “an ill-thought-out plan” that will not help the majority of people who need it.
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