Big housing bill: no rescues soon
Help for strapped homeowners may not be forthcoming until next year; ramping up the new government programs will take months.
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"Some critics say it is a Bank of America bailout," says Litan. "But I supported this bill because something is better than nothing, and if you view the housing price decline as a runaway freight train, this legislation applies some brakes."Skip to next paragraph
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Another incentive for banks to participate in the program might be to staunch losses. On Monday, Merrill Lynch & Co. agreed to sell $30 billion of mortgage-related securities for 22 cents on the dollar.
"It was a mix of recognizing losses that they had not owned up to, plus suffering some new losses," says Litan.
For homeowners, the rescue package might be the last chance to keep their homes – if they can qualify for the program. "Our take is that for those who do benefit, it does help," says Mr. Carr. "But it's also clear it won't have a major effect in stemming the foreclosure crisis."
The key issue for homeowners will be how much the lender agrees to write down the loan.
"That will determine the demand for the product," says Lou Tisler, executive director of Neighborhood Housing Services of Greater Cleveland Inc. "If the borrower has to refinance at a still-overinflated principal amount, then the change means nothing."
Mr. Tisler says his organization, which negotiates with mortgage servicers on behalf of financially strapped homeowners, is still not seeing enough of an interest by the banks in writing down the principal amount owed. Instead, he says, many banks would rather tack arrearages onto the back of a loan.
On Wednesday, Hope Now, a private-sector alliance of mortgage services, investors, and counselors, said it completed in June 181,000 workouts of loans to prevent foreclosure. In the past year, the group reports preventing 1.9 million loans from being foreclosed. More than half of the workouts were subprime loans – that is, loans made to people with less-than-stellar credit.
Faith Schwartz, executive director of Hope Now, says some solutions do involve tacking on missed payments. But "at the end of the day," she says, "the payments are meant to be affordable."
Hope Now is monitoring 928,000 loans, mostly subprime adjustable-rate mortgages that were due to reset between January and June of this year. Of those loans, 382,000 were either refinanced or paid off. Some 57,000 loans were modified.
"Of those modified loans, 72 percent are for five years or longer," says Ms. Schwartz.
Hope Now is also finding that borrowers appear to be managing the interest-rate resets so far. As of Jan. 1, less than 1 percent of the loans that were current but due to reset have started the foreclosure process.
"It seems to be working; they are staying current," says Schwartz.
Even with all the new programs, it will be a challenge to persuade some borrowers to participate in them. In Cleveland, for example, some borrowers are inclined to just walk away from their houses, especially on distressed blocks, says Councilman Anthony Brancatelli, an expert on housing issues.
"After someone has been through a predatory loan [and] they are now facing foreclosure notices, it's difficult to say 'embrace this house,' " says Mr. Brancatelli.