U.S. to increase housing loans

March 27, 2010 by · Leave a Comment 

$14 billion to help jobless owners refinance via FHA

BY GRETA GUEST
FREE PRESS BUSINESS WRITER

The Obama administration said Friday that it would widen the reach of its home loan modification program, which could help thousands of unemployed and underwater Michigan homeowners.

The Home Affordable Modification Program, criticized for its slow pace and low number of modifications, would put $14 billion toward the program by helping those who owe more on their homes than they’re worth get new loans backed by the Federal Housing Administration. Unemployed people would get a temporary break, with lowered mortgage payments for three to six months.

The FHA refinancing program would be available to those with credit scores as low as 500, said Vince Parlove, president of First Preferred Mortgage in Bingham Farms. The programs are expected to be available in the fall.

Drew Sygit, a certified mortgage planning specialist who leads the Lending Edge Team at First Michigan Bank in Troy, said the plan sounds great on paper. But he expects it would take months to roll out and could be difficult for banks to execute.

Mark Zandi, chief economist at Moody’s Economy.com, said the changes could spare 1 million to 1.5 million homeowners from losing their homes. And it could end the housing crisis earlier than expected.

Struggling homeowners eager for aid

Heidi Lucken, who has been working to save her Oak Park home for the better part of five years, was hopeful Friday that the expanded federal government loan modification program could help her stay.

Lucken, who lives in the three-bedroom, 1.5-bathroom house with her two sons, said the home that she bought in 2002 for $107,500 is now worth $55,000. She has been laid off, rehired and is now on a medical leave from her human resources job. She was granted a temporary loan modification last year, but has been waiting for something permanent.

“I’m hopeful about it for everyone,” Lucken said.

Despite the Obama administration’s attempts to short-circuit the housing crisis, just 170,000 loan modifications have been made since the program was unveiled last year. About 6 million homeowners have missed at least two months of mortgage payments. Meanwhile, Michigan ranks fourth nationwide for the number of mortgages that are underwater, meaning the owner owes more on the house than it is worth.

The expanded program, announced Friday, would encourage lenders to reduce the amount some troubled borrowers owe on their home loans and give jobless homeowners a temporary break. It also would help underwater homeowners refinance into loans backed by the Federal Housing Administration. The FHA will get $14 billion in incentive money from the federal bailout fund. Lenders would get incentive payments to reduce principal on home loans, but it was not clear Friday what those were.

“This is very encouraging for people who are having problems out there,” said Vince Parlove, president of Bingham Farms-based First Preferred Mortgage. “It is stimulating the lenders to go out and do these kinds of loans.”

Parlove said that according to information provided to lenders, FHA will allow people with credit scores around 500 to qualify for these loans. It would be available only to those who are current on their mortgages, and lenders must agree to a principal write-down.

“This is a pretty wide stroke of the brush in my mind,” Parlove said. “We’re starting to get our arms around this and helping people who have been hurt by the economic situation in the United States and Michigan.”

Since the housing crisis started, Michigan’s average home sale price has dropped by 35%. And the state remains in the top 10 for monthly foreclosure filings.

Administration officials cautioned that the plan won’t stop all foreclosures or help all troubled homeowners. Instead, they said the goal is to meet the original target of helping 3 million to 4 million borrowers avoid foreclosure.

Sygit said he was encouraged that principal write-downs are part of the plan.

“All the academics have said it isn’t going to work until you write down the principal balances,” Sygit said. “And here we are three years and billions of dollars later.”

It also gives temporary help for unemployed people who are looking for work. People receiving unemployment benefits would see their mortgage payments drop to no more than 31% of their monthly income for three to six months.

In Michigan, 39%, or 532,774 properties, were considered underwater, according to First American CoreLogic data through December. More than 11 million mortgages nationwide are underwater.

The administration’s existing program to prevent foreclosures has failed to make a major dent in the problem. A lack of planning created a huge backlog in the program, the special inspector general for the federal financial bailout fund told lawmakers this week. Only 170,000 homeowners have completed loan modifications out of 1.1 million who began the program over the past year.

The administration also stressed that the plan won’t aid investors, speculators or “Americans living in million-dollar homes or defaulters on vacation homes.”

But preventing even a fraction of potential foreclosures could help stop home prices from falling more. That would encourage those who are underwater to keep paying their mortgages as prices stabilize.

While many are critical of the government’s efforts to repair the housing market, Parlove said that even if the administration has made mistakes, it keeps trying new things and could eventually arrive at the solution. The FHA loan will be a standard loan program, which means local brokers can handle them for people instead of everyone needing to apply online, he said.

“There isn’t one solution for everyone. We have to keep layering these on,” he said. “Hopefully we will get a big bang out of this. I think it will stimulate the local mortgage firms.”

Banks will be given extra incentives to reduce payments or eliminate second mortgages, such as home equity loans. Second mortgages have derailed many modifications.

The four big holders of second mortgages — Citigroup Inc., Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co. — have now joined the government’s program to modify second mortgages, after pressure from the Treasury Department. That program was delayed for months, but now the major industry players are on board.

Contact GRETA GUEST: gguest@freepress.com. The Associated Press contributed to this report.

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