Plans in Place to Help Distressed Homeowners and Their Lenders

by Nancy Osborne, COO of ERATE

 

It appears that the full extent of the damage has yet to be revealed when it comes to the fall out from the mortgage crisis which began unraveling back in August of 2007. Since the disaster first unfolded a number of programs have been introduced to stem the growing tide of mortgage delinquencies and foreclosures. Lenders, servicers and investors are running scared as foreclosure numbers are expected to hit the million mark, almost four times the level which occurred in 2007, with the number of serious mortgage loan delinquencies now exceeding a million. It is estimated that 30% of home buyers of the past several years may currently be upside down on their loans, meaning the value of the home is less than what they owe on the mortgage. Another apparent problem with the so-called workout plans being promoted is that a high percentage of borrowers who take advantage of them may end up going into foreclosure anyway, that number is estimated to be as high as 40%. Many industry experts believe this is due to declining real estate values which encourage many borrowers to simply walk away from the home rather than renegotiate the mortgage terms. It has been proposed that a re-negotiated, reduced principal loan balance, based on current market values, would be a more realistic approach to the problem and would certainly make sense when one considers that IRS guidelines technically do not permit homeowners to even deduct the interest on a mortgage that exceeds the value of the property further compounding the problems of already distressed homeowners. Here is an overview of the some plans available to assist eligible homeowners:


Hope Now Alliance - this plan was initiated by the Treasury Department and the Department of Housing and Urban Development (HUD). The objective of the alliance is to help those adjustable rate borrowers who have been able to make their mortgage payments at the start or initial teaser rate but would be unable to do so once the rate is re-set at the first loan adjustment. The suggested goal is to freeze an ARMs initial start rate for a period of 5 years and would apply only to those borrowers having less than 3% equity in their homes and having provided full income documentation on an owner-occupied residence (investment properties do not qualify). This plan is proposed for loans originated from Jan. 1, 2005 to July 30, 2007 which are due to re-set between Jan. 1, 2008 and July 31, 2010. The plan is voluntary for both lenders and borrowers as mortgage lenders and servicers are not required to comply.


Project Lifeline - this plan was initiated by the six major lenders comprising 50% of the mortgage market in hopes of stemming the swelling numbers of REOs hitting their books. The goal of this plan is to extend help to all borrowers in distress, not just those in the sub-prime and adjustable loan categories, whether they are delinquent on their payment or not. It would give borrowers a 30 day window to work out an alternative to foreclosure, essentially offering a 30 day "pause" in the foreclosure process. This plan is available to owner-occupants only and does have some restrictions on eligibility and excludes: those who are bankrupt, borrowers who are more than 3 months behind on their mortgage payments and have a foreclosure date scheduled within 30 days. Those who are eligible for the plan are to receive an unsolicited letter advising them so, sent directly from their lender instructing them how to take advantage of this option. Find some of the lowest mortgage rates in your state.


Operation Protect Your Home - this state sponsored plan was initiated in New York by both the New York Senate Democratic Conference and the New York State Banking Dept. The goal of this plan is to address the sub-prime crisis, particularly in the area surrounding the loan modification effort, in a more coordinated way to benefit all effected parties. With the primary goal of assisting those having difficulty making their payments or having already fallen into default. Letters are sent to at risk borrowers by their respective Democratic State Senator inviting them to participate in a local lending forum. Those borrowers whose mortgages are on tap to re-set or those who are already delinquent in their payments will receive priority, however the meetings are free and are open to the public. Check your state government website to see what resources are available in the state you live in.