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New plan would cut foreclosures
date: July 10, 2008
SOURCE: The Detroit News
By: Brian J. O'Connor
A pilot program aimed at reducing foreclosures and keeping more Michiganians in their homes will kick off by the end of September. The program was announced Wednesday by Steve Preston, secretary of the U.S. Housing and Urban Development Department, in an appearance at the Detroit Economic Club.
Earlier in the day, Preston met with counselors and managers of GreenPath Debt Solutions in Farmington Hills for a roundtable discussion on the housing crisis. GreenPath is a HUD-approved nonprofit housing counselor that provides budget and debt counseling and assistance.
The new foreclosure prevention program will allow lenders to skip foreclosing on delinquent FHA-backed loans and avoid evicting the homeowners.
Instead, lenders will assign the troubled loans to HUD and collect the mortgage insurance. HUD, in turn, will assign the loans at a discount to a joint venture partner. That partner, which still is to be selected, will be responsible for servicing the loan and working out either a loan modification or refinancing.
In addition to keeping homeowners off the street, the program will inject capital back into the market by allowing the original lender to collect the unpaid principal balance immediately through the Federal Housing Administration, instead of going through Michigan's six-month or longer foreclosure process. It also means bonds and other securities based on those nonperforming loans will avoid going into default or racking up big losses, which has been the root cause of the global credit crisis that emerged last fall.
The program also aims to protect property values of nearby homes by keeping foreclosures off the books and vacant homes out of the neighborhood.
In some cases, HUD officials admit, the program won't be able to save all shaky loans, and some borrowers still will be forced into foreclosure. The program will, however, give borrowers more time and opportunity to work out a payment plan instead of going straight to a sheriff's sale.
"The primary objective of this partnership is to keep as many Michigan families as possible in their homes," Preston said. "It will not only help individual homeowners, it will reduce the flow of vacant properties weighing down property values and creating blight in neighborhoods."
The program will be voluntary for lenders, but HUD will encourage venture partners to work with all eligible borrowers.
GreenPath counselors were hopeful the new program would provide more troubled borrowers with a way to stay in their homes. Often, the only option for borrowers who are behind on their mortgages is to resume their monthly mortgage payments with the arrears added on top, making it impossible for them to catch up, said Rus Halsey, director of operations for GreenPath.
"Any time there's more options created out there for consumers to allow them to stay in their home, I think that's a fantastic deal," Halsey said.
During his visit to GreenPath, Preston heard from counselors who noted that some lenders lately have become more receptive to modifying loans. The frontline staff also told Preston that many clients feel victimized by confusing or misleading mortgage papers that they didn't really understand and that many borrowers seem to get their financial education from lender ads, rather than unbiased sources that can put the borrower's interest first.
"It is a shame we are talking to people about budgeting, money management and better mortgage options when their housing payment is already delinquent," GreenPath counselor Veronica Smith told Preston. Also during his Economic Club speech, Preston noted that HUD will be extending and modifying the FHASecure program. Borrowers who have missed up to three payments in 12 months will be eligible to refinance high-cost subprime adjustable rate mortgages through the FHA, and lenders can voluntarily write-down the outstanding principal balance.
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