(NECN: Peter Howe, Boston) After a year of federal "mortgage modification" programs that have barely eased the housing crisis, President Obama's administration is trying again. This time it's a program focused on helping those "underwater," because they owe more than their home's worth, and giving unemployed homeowners some breathing room to find a job and then catch up on their mortgages.
Fred Peterson of Lynn, Mass., is one of the estimated 15 million Americans now underwater on their homes. After refinancing in 2007, he owes $540,000 on a Lynn home he says is worth, maybe, $350,000 to $400,000. "I think the best thing for me right now would be to have some breathing room, some time to catch up, get my income back,'' Peterson said.
He works as a site-preparation contractor, a business that's been hammered as the recession has eviscerated the construction industry. As a result, he's also struggled to stay current on the payments on the mortgage that he refinanced in 2007, when he was enticed by a mortgage broker to borrow $100,000 more than he initially sought.
"It's gone back and forth. I miss three or four [payments, then] I catch up, has been the worst case,'' Peterson said, adding that it was probably six months ago that he was last fully current on his mortgage. "I was never able to catch up, the program was far more than my income was. I just wasn't able to catch up so it's just been snowballing into something that is getting out of control.''
The new plan announced by the Obama administration uses $14 billion from the Wall Street bailout Troubled Asset Relief Program to help the Federal Housing Administration back refinanced mortgages for people who owe more than their home is worth. The guidelines would offer new mortgages for no more than 115 percent of the current value of the home, which means people whose mortgages are 140 or 160 or 180 percent of their current value may be unlikely to get help under the program because their lenders may balk at writing off that much principal.
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For unemployed people, Obama administration officials say the new plan uses various incentives to push lenders to cut unemployed homeowners' payments for 3 to 6 months, capping what they have to pay at 31 percent of their income during that time, which would normally mean 31 percent of what they get in jobless benefits. In some circumstances unemployed homeowners could skip repayments outright during that time. The theory is to give people struggling to find a job and keep current on a mortgage more time to focus on their job search, then have them resume paying back the mortgage once they're re-employed. These provisions would cover only mortgages originated before 2009 that total below $729,750, the White House said.
Darren Duarte, a mortgage-relief activist with the Neighborhood Assistance Corporation of America said the focus seems to be "to say to a homeowner, 'Look, we understand you have no income, so we're going to give you a time of no payments until you can get back on your feet.' ''
Now, if you are thinking, I feel like I've heard of a lot of "mortgage relief" plans coming out of the White House and Congress over the last year, and none of them really seem to go anywhere -- you're right. They haven't. Experts continue to predict to 10 million to 12 million Americans are going to be hit with foreclosure in the next three years.
One year ago, for example, President Obama announced with huge fanfare a "Making Home Affordable" program that promised mortgage relief for 3 million to 4 million homeowners. Numbers released this week show, however, that so far only 1.1 million homeowners have even begun the convoluted, confusing process of seeking the modifications. And by now, barely 170,000 mortgage holders have actually had their mortgages modified -- barely one-twentieth of what Mr. Obama has promised the program will ultimately deliver.
NACA's Duarte said, "What's gone wrong with that program is, again, it's encouraging lenders and servicers to do the right thing. It didn't require them to do anything.''
Meanwhile, in the fourth quarter of 2009, the number of mortgages more than 90 days delinquent soared by 270,000.
With his home value so far below the mortgage he's trying to repay, Lynn's Fred Peterson said, "You know, some people have suggested that I walk away.'' But he's resolved that is the wrong move. "I'd have a lot of trouble for a lot of years if i just walked away . and i dont think it's necessary. if i can just get a grip. i think i'll be o-k.
Duarte said he's still waiting to see just how much the government can force lenders to do, as opposed to, one more time, trying to provide incentives for them. "I think it's a step in the right direction, but I do think the government needs to take stronger action,'' Duarte said. "We are still in a crisis.''
