New help for underwater loans [The Bakersfield Californian]

Aug. 26--In the early years of the housing market crash, many homeowners found they had few, if any, options for escaping enormous mortgages for far more than the homes were worth.

When it became clear that the sluggish economy would never recover without some sort of housing market intervention, federal and state governments and the banking industry came up with an array of programs designed to help. So far they haven't put much of a dent in the problem, but distressed homeowners are being urged to give it another try. Following criticism that neither public nor private sector programs have been effective, they've all been tweaked, to some extent.

"There's a lot of help available," said Diane Richardson, program director of the state's Keep Your Home California program, which helps low- and moderate-income people at risk of losing their homes. "This is a unique opportunity to help people who are struggling but just need a little bit of help to hold on."

Nearly half of homes with mortgages in the Bakersfield area are indebted for more than their value, otherwise known as "upside down" or "under water."

Several agencies serving those homeowners are reporting increased traffic now that some important changes either were recently enacted or are expected to come online soon.

The California Housing Finance Agency says the number of people getting help through the state's Keep Your Home California program rose 64 percent between the first and second quarters of the year.

The Federal Housing Finance Agency earlier this month released its June Refinance Report, which showed that one of every three refinances through Fannie Mae and Freddie Mac were made through the federal government's Home Affordable Refinance Program, or HARP.

Under HARP, homeowners with an upside-down loan owned or guaranteed by Freddie Mac or Fannie Mae can refinance with participating lenders.

When the program first launched in 2009, it was only available to people who were only slightly under water, which edged out large numbers of homeowners who bought at the top of the market.

But in October of last year, loan-to-value caps were removed and even homeowners who are severely upside down can now get help as long as they're current on their payments.

The new HARP guidelines also relaxed credit rating and income requirements, but only as long as the new monthly payment is no more than 20 percent higher than the current payment.

In the first six months of this year, Fannie Mae and Freddie Mac have refinanced 422,969 loans through HARP, more than the 400,024 loans refinanced in all of last year.

U.S. Rep. Jim Costa, D-Fresno, was among those pushing the federal government to do more.

"The fragile economic recovery isn't going to gain a solid footing until the housing market gets back on track," he said. "A house is the largest single investment the average family will ever make."

Loan modifications aren't going as well.

A loan modification is a change to the terms of an existing loan, such as a lower interest rate or a lower monthly payment. That's different from refinancing, in which a previous loan is replaced with a new loan.

Usually a modification is temporary, but sometimes the changes are permanent.

The number of private modifications dropped 17 percent to 46,402 in June compared with June of last year, according to Hope Now, a coalition of mortgage loan servicers, investors and other mortgage industry professionals.

Permanent modifications under the federal government's Home Affordable Modification Program, or HAMP, dropped 46 percent in June to 17,192 year-over-year, for a 28 percent decline overall.

But those numbers are likely to improve in October, when the provisions of the national mortgage settlement take effect.

Among other things, the $25 billion settlement between a coalition of state attorneys general and the nation's five largest mortgage servicers prohibits servicers from foreclosing while an application for a loan modification is pending.

The agreement provides various other forms of relief for qualified homeowners, too, including payments to those who were foreclosed on improperly and help for people under water.

The state and federal programs are only effective, of course, if lenders agree to participate.

Costa said he finds that cooperation "mixed, at best."

His office is still getting five or six constituents a week coming in with sad stories about banks giving them the run around, Costa said.

And even among participating banks, policies vary widely.

First Mortgage Corp. only does HARP refinancing for loans already on its books, for instance.

"Others will do them for anybody, but they'll put additional layers of criteria on the loans that doesn't honor the spirit of the program," said First Mortgage District Manager Ron Briggs.

All of the programs should certainly help, but they don't go far enough, said Paul Leonard, director of the California office for the nonprofit advocacy group Center for Responsible Lending.

Among other things, he'd like to see unclaimed bank bailout money from the Troubled Asset Relief Program used to pay down principal for severely underwater homeowners, and he wants the HARP program expanded beyond only loans owned or guaranteed by Freddie Mac and Fannie Mae.

But all the programs in the world might not be enough for some of the most distressed borrowers, said Katy Hudson Christenson, president and CEO of Consumer Credit Counseling Service of Kern & Tulare Counties.

"Word is getting out about these programs, and the message is that all you have to do is pick up a phone and call and we can save your house," she said. "But the reality is you have to be able to make some sort of mortgage payment, and with our unemployment rate not everybody can do that.

"The hard facts are that for a lot of people, the numbers still aren't going to work."

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