Will Obama's new homeowner-assistance program help homeowners?

Will Obama's new homeowner-assistance program help homeowners?

by J. Craig Anderson The Arizona Republic Mar. 27, 2010 12:00 AM

The Obama administration disclosed plans Friday to add two key components to its homeowner-assistance program: mortgage help for borrowers who have lost their jobs and principal-balance reduction for those with unaffordable monthly payments.

Homeowners facing the possibility of foreclosure said they were encouraged by the new additions to Obama's Home Affordable Modification Program, or HAMP, especially the push to reduce loan balances for millions who owe more than their homes are worth.

Banks also would have the option to refinance the loan to a fixed-rate mortgage with backing from the Federal Housing Administration.

The downside, skeptics said, is that the program needed a major overhaul, and all it got was a tune-up.

Aside from adding the recently unemployed, the revised program does not appear to widen what was a narrow eligibility window for the original program, according to the limited information federal officials provided Friday.

Strict qualifying criteria, which include demonstrable financial hardship without a single missed mortgage payment, have limited the success of the program, which President Barack Obama first announced in February 2009 before a cheering crowd at Dobson High School in Mesa.

Of the roughly 1.1 million homeowners who have applied, only 170,000 have received modified loans. Just half of those borrowers are expected to keep their homes.

Tanya Wheeless, Arizona Bankers Association president and CEO, said Friday's news sparked a feeling of deja vu.

"This is a new program that's making a big splash, but it's not going to help a lot of Americans," Wheeless said. That's partly because of the difficulty to qualify, she said, and because lenders are likely to reject the administration's financial incentive of 10 cents to 21 cents on the dollar to lower principal balances.

Meanwhile, Wheeless said, loan servicers will be flooded with calls from borrowers who already have been rejected, hoping for a second chance. The servicers also will have to undergo additional training to learn the new program, which could slow the relief to some qualified borrowers.

In all, experts estimate 10 million to 12 million homeowners face serious risk of foreclosure over the next three years.

Bank of America announced Wednesday, before the new federal program was public knowledge, that the bank would lower the mortgage balances for about 45,000 customers who met certain requirements, similar to those required by the federal homeowner- assistance program.

BofA customer Harry Baker, 67, of Scottsdale, is deeply underwater on his home of 23 years after a poorly timed decision to refinance to an adjustable-rate loan, also called an ARM, and pay off all his other debts in 2006.

Baker said it doesn't matter to him whether the bank or the government initiates it - he just needs someone to help.

"I got stuck with that ARM because I didn't sell it, and then I couldn't sell it," he said. "I had to go back to work. I'm hoping I can retire again at 70."

Local advocates for both borrowers and lenders said they hope providing temporary help for the unemployed, which could last anywhere from three to six months, would make the program more effective and the delicate housing economy more stable.

"Unemployment has been a big reason why people aren't qualifying for modifications in Arizona. It (the jobless aid) means they're listening to people on the ground," said Patricia Garcia-Duarte, president and CEO of Neighborhood Housing Services of Phoenix.

Garcia-Duarte said the homeowner-assistance program's new components will only make it better without adding any taxpayer cost.

The new aid will be funded with $50 billion of the original assistance program budget, officials said, and thus will not require any new funding. The government said it will split the cost of payment reductions with participating lenders.

Dawn Page, Arizona spokeswoman for Laborers' International Union of North America, said the mortgage-payment assistance for out-of-work homeowners should give a boost to the group's members.

The Washington, D.C.-based organization, also known as LIUNA, represents workers in the construction industry, which is facing a 20 percent unemployment rate nationwide, according to the latest Bureau of Labor Statistics data.

"We are hopeful that the current proposal from the administration will help keep the millions of homeowners who face foreclosure in their homes," Page said. "Reducing the principal owed for underwater homeowners and helping unemployed workers should make a big difference for the homeowners we have worked with and our hard-hit construction members."