By Robert Lewis
rlewis@sacbee.com
Published: Wednesday, Apr. 6, 2011 – 12:00 am | Page 6B

Soon after launching a $2 billion statewide mortgage assistance program, the California Housing Finance Agency said Tuesday it would loosen eligibility requirements – allowing owners who used their homes as cash machines during the boom to now receive some help.

The change to the Keep Your Home California initiative acknowledges just how many homeowners now in trouble tapped into their equity during the peak.

“It is a higher percentage than we were expecting,” said Diane Richardson, the program manager.

In January, after months of delays, the state launched the first phase of the federally funded effort. All four of the initiative’s programs were up and running by early February.

The state’s goal is to help more than 100,000 homeowners. To date, though, just 201 have received assistance through one of the four programs – at a cost of less than $1.5 million.

About 145 of those people received assistance last week alone, suggesting the effort is gaining momentum, Richardson said. Another 2,200 homeowners are in the final application process.

Originally, the state said homeowners who refinanced and took out cash during the boom would not be eligible for help. After a couple months of processing applications, however, CalHFA decided to help some of those owners – making them eligible for programs that help unemployed people pay their mortgages, pay moving costs for those losing homes and help delinquent borrowers catch up on their payments.

The state is also expanding eligibility to include mortgages originated after Jan. 1, 2009.

The looser eligibility does not apply to the most attractive piece of the initiative: government money to pay down mortgage principal.

Under that program, the state splits the cost of reducing a distressed owner’s mortgage principal with participating loan servicers. About $790 million of the $2 billion initiative has been set aside for principal reduction.

So far, however, just a few servicers – including GMAC and the Guild Mortgage Company – have signed on to this program. Bank of America has started a pilot program with the state to try out principal reduction.

Major loan servicers such as CitiMortgage, JP Morgan Chase Bank and Wells Fargo have so far refused to participate.

“While we do support principal reduction as a way to help reach affordability for customers who are facing a financial hardship, we don’t believe it is an appropriate across-the-board solution,” Wells Fargo spokesman Tom Goyda wrote in an email to The Bee.

Fannie Mae and Freddie Mac – the government-sponsored entities that own many distressed mortgages – have also refused to allow loan principal reductions on their loans, even if they are serviced by another institution. Both lenders are under the conservatorship of the Federal Housing Finance Agency.

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