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In Ohio, a fresh approach to help struggling homeowners

ESOP works by acting as a good-faith liaison between mortgage lenders and borrowers, helping people who are straining to pay their mortgages stay in their homes.

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ESOP provides this human element by bringing executives from banks and loan servicers on community tours, where they get to meet their homeowners and see the effects of their policies. In one case, reported by David Bornstein in the New York Times last year, the lending agency Countrywide “signed an agreement after senior executives took a tour of Slavic Village, an area on the east side of Cleveland where a third of homes, many of them foreclosed by the lender, remain vacant, boarded up, stripped and ransacked, demolished, or occupied by squatters and drug dealers.”

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Once lenders have seen these neighborhoods with their own eyes, they are more apt to agree to ESOP’s “fair-lending agreements,” under which they enter into a working relationship with underwater homeowners.

For Martin, Ocwen’s principal-reduction loan plan wasn’t just the best option – it was also the only one available, since he wasn’t approved for the government’s HARP. Ocwen began offering its principal-reduction loan plan about a year ago. The Washington Post reports that “79 percent of the customers who were offered the test program signed up, and the re-default rate has been 2.6 percent – far below the 40 to 50 percent rates within similar periods in some federally sponsored loan-modification efforts.”

Ocwen hopes to take the program national, and is close to having regulatory approval in every state.

ESOP would also like to see its unique approach go national. But there are barriers to expanding the lending agencies they work with.

“The main reason this can’t happen on a large scale to make a significant impact on the housing market is because FHFA, the conservator of Fannie Mae and Freddie Mac, will not use principal reduction on mortgages that it owns or underwrites," Deonna Kirkpatrick, ESOP’s director of communications, told Dowser.

But the FHFA's position is being contested. "Some members of Congress are challenging the acting director, Ed DeMarco, on this [with a letter and a YouTube video asking DeMarco to change his position on principal-reduction loans],” she said.

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