Borrowers Struggle Despite Assistance

CUNA’s E-Scan Newsletter
August 17, 2010 | COMMENTS

Mortgage rates may have hit an all-time low, but clearly that's not enough to stimulate lending activity. With the expiration of home-buyer's tax credits, home sales tumbled in the last two months.

And while the recently passed financial regulatory reform bill contains numerous consumer-protection standards, it also includes several lending-related provisions designed to blunt the effects of the mortgage crisis. The Dodd-Frank Wall Street Reform and Consumer Protection Act (financialservices.house.gov) provides for:

• Mortgage relief: Allocates $1 billion for bridge loans to qualified unemployed homeowners with reasonable prospects for reemployment to help cover mortgage payments.
• Neighborhood stabilization: Provides $1 billion to states and localities to combat effects of the foreclosure crisis by rehabilitating and reusing abandoned and foreclosed properties.
• Legal assistance: Authorizes grants to provide legal assistance to low- and moderate-income homeowners and tenants related to home foreclosure prevention.

The mortgage-relief provision seeks to address an issue that has stymied foreclosure-prevention efforts for more than a year: An increasing number of borrowers can't make their loan payments because they have lost their jobs. With little or no income, these borrowers struggle to make even the reduced payments offered under Making Home Affordable, the federal government's foreclosure-prevention program.

The loan-assistance provision is modeled after a Pennsylvania program that offers unemployed workers low-interest loans to pay their mortgages. Borrowers are eligible for loans of up to $60,000 that can be repaid with payments as low as $25 a month.

By one estimate, the measure could help 500,000 families who have lost their jobs remain in their homes.

Homeowners drop out

Meanwhile, the Making Home Affordable initiative continues to struggle, reports The Washington Post. Government data released in mid-June show fewer homeowners are enrolling in the program and more are losing their federal mortgage aid.

Lenders enrolled homeowners into the federal mortgage program at a slower pace in recent months after officials tightened the qualification process. Since the program's launch last year, about 340,000 homeowners have received a permanent loan modification that lowers their mortgage payment for five years.

But a growing number of borrowers are failing to move from the program's initial stage into a permanent loan modification. Lenders say many homeowners are failing to make the reduced loan payments and others have not been able to prove they qualify for mortgage assistance.

The number of borrowers dropped from the program—about 436,000—eclipses those who have been helped, according to U.S. Treasury Department data. More than 100,000 borrowers lost their mortgage aid in May.

About half of those dropped from the federal program received another type of loan modification from their lenders, according to the Treasury data. But housing counselors have complained that those alternative loan modifications are typically not as generous as what the government program offers and often come with hefty upfront fees.

"Obviously it's good to know these people haven't gone through foreclosure yet," Julia Gordon, senior policy counsel at the Center for Responsible Lending, tells the Post. But there's no guarantee that lenders are offering modifications that will be sustainable for homeowners, she adds.

This article originally appeared in CUNA's E-Scan Newsletter. Reprinted with permission.