Mortgage Relief Q&A: Who? How?

Treasury Secretary Henry Paulson has made many speeches with one refrain: that the critical element to saving the economy is that the housing crisis must be stopped.

And while he's busy addressing the ailing financial industry with a variety of approaches using $700 billion, the Federal Housing Authority has announced a mortgage relief program. Immediately, critics like Sen. Chuck Schumer (D-NY) and FDIC Chair Sheila Bair said that the mortgage relief program, called the "streamlined modification program," wouldn't be enough to fix the problem. It was also seen as a big step back from a mortgage relief plan the White House had been considering.

WHO QUALIFIES FOR MORTGAGE RELIEF?

The New York Times published a piece offering help to homeowners wondering if they qualify for mortgage relief and wondering how to get it:

Whatever the reason, the bank wants to know your current debt to (pretax) income ratio. If your monthly household income is $10,000, the bank may consider you overburdened if you're paying more than $4,000 or so toward your housing costs, or 40 percent of your income. So don't bother trying to get a better deal if your percentage is down near 25 percent.

But there are a lot of hurdles. First of all, not everyone who needs help knows they qualify. And the reverse is true, too: not too many who apply actually do qualify for mortgage relief.

The federal government's Hope for Homeowners program launched Oct. 1 was initially projected to help as many as 400,000 struggling borrowers avert foreclosure over the next three years.

But fewer than 100 homeowners applied for the program in October, and the Federal Housing Administration now projects that just 13,300 will be helped in its first year. An FHA official said at a mortgage industry conference recently that one large lender had reported that in a group of 23,000 troubled borrowers only 1,200 would be eligible for the program.

WHO NEEDS MORTGAGE RELIEF?

The Times also had an excellent chart showing candidates for mortgage relief: places where homes are worth less than their mortgages.

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WHAT IS "HOPE NOW?"

Hope Now, an "alliance" of private institutions aimed at providing mortgage relief, was launched prior to the major financial meltdown this year, and was getting overwhelmed even then:

The move by the Hope Now alliance involves uniform guidelines that lenders and servicers have agreed to abide by, such as issuing a decision within 45 days on whether to modify a homeowner's loan. The plan follows complaints that the Hope Now alliance, which was set up to aid troubled homeowners, has been slow to help enough people.

Organizers offered no projections on how many people might be helped. But the major thrust of the program is to create a more streamlined approach to speed the process of providing help. The roughly 25 lenders and servicers that work with Hope Now have agreed to the guidelines, which aren't legally binding. Some servicers may adopt the guidelines quickly, but all are expected to do so within 60 days.

"Hope Now has been helpful, but it's getting completely overwhelmed by the magnitude of the problem," says Mark Zandi, chief economist of Moody's Economy.com. "Anything they can do to help more homeowners is great, but they're not set up and designed to solve the problem that is now plaguing the mortgage market, which is negative equity."

For more:

::Mortgage Debt Relief Act Of 2007 [IRS]
::Hope Now mortgage relief

Comments

[tompoe]

Months of discussions, all agreeing that it "takes a long time" to do this, yet not a peep about a moratorium on foreclosures until the details are worked out. I find that obscene. How about you?