Foreclosure-prevention plan laid out

The Obama administration yesterday offered pages of nitty-gritty details for its promised $75 billion attack on the nation's foreclosure epidemic, aimed at saving as many as nine million homeowners from foreclosure.

The debut of the two-pronged Making Home Affordable Program, focused on mortgage modification and refinancing, will likely be delayed for several weeks, though, as lenders prepare for the anticipated onslaught of borrowers' looking for help.

The program, first announced Feb. 18, is designed to help up to five million borrowers refinance to lower rates by June 2010 if their mortgages are owned by Fannie Mae and Freddie Mac.

It also provides incentive payments to lenders, to encourage them to modify by Dec. 31, 2012, existing mortgages for about four million Americans who will face foreclosure if nothing is done, as well as rewards to borrowers who pay on time for five years after modification.

Obama's plan is an ambitious one that "goes much further than previous proposals to stabilize housing," said Patrick Newport, housing economist at IHS Global Insight Inc., of Lexington, Mass. "It will help reduce the number of 'preventable foreclosures.' Whether it will stop the [home-price] bloodletting, however, time will tell."

Treasury Department officials reiterated yesterday that the program was for "responsible" homeowners, eliminating thousands who knowingly bought properties they could not afford.

"The program is still a controversial one," said Heather Fernandez, vice president of marketing for Trulia, the real estate search engine. "The administration is using the idea of shared responsibility to the American people, who don't want to pay for borrowers who screwed up - the hated neighbor who refinanced to the hilt to build the addition and is now under water."

By visiting www.FinancialStability.gov or calling 1-888-995-4673, troubled borrowers can learn about eligibility. The Web site also warns about using "any person or organization that asks you to pay a fee" for modifying a delinquent loan.

Many lenders, as well as Fannie Mae and Freddie Mac, have had foreclosure moratoriums in place since the program was announced last month. Fannie and Freddie said they would continue observing the moratorium. Wells Fargo & Co.'s is set to end March 13. Bank of America Corp. has left the date open-ended.

Lenders' cooperation is critical to the initiative's success.

"The Obama plan or any other plan will not work if the people implementing [it] are not making practical and rapid decisions," said Peter Buchsbaum, branch manager of Arlington Capital Mortgage Corp., of Jenkintown.

Delaware County homeowner Wilma Ervin fits the definition of "responsible" - she is not behind on her mortgage, so she likely could qualify for the program. She has been trying on her own for several months to have her mortgage modified, with little success.

"Personal issues" pushed her into an adjustable-rate mortgage starting at 9.875 percent interest, she said. Still able to make her payments but fearing there would be a time when she couldn't, she called her lender, Wells Fargo, to see if she could modify her loan to a more reasonable fixed rate.

"Since I haven't been 30 days' late and my rate adjusted down to 9 percent," Ervin said, Wells Fargo initially would not even let her apply for modification. It took three or four calls just to get the modification material.

Wading through reams of paperwork, she returned the completed documents to Wells Fargo last week. "It will take two months to happen - if it happens," Ervin said.

For most lenders, an overwhelming volume of modification requests has been creating long processing delays, Bank of America spokesman Rick Simon said.

In addition, because mortgages are securitized into packages, several investors must sign off on the modification of a single loan in the package, he said - that requires preparation of a budget showing which option, either modification or foreclosure, will offer the best financial outcome.

Until now, banks have often been part of the problem, rather than part of the solution for homeowners.

Buchsbaum said he tried to modify his mother-in-law's loan with Citibank on her condo in Pompano Beach, Fla., not because she couldn't afford the 6 percent fixed rate, but because the unit was now worth less than the principal owed. "When I called about it," he said, Citibank "acted as if I had three heads."

Buchsbaum was interested in reducing the rate, not the principal or the loan term for his mother-in-law, who likely could qualify for the new government program.

Features of the Obama plan would allow extending mortgage terms up to 40 years and reducing the principal $1,000 a year for five years to reward those who have made on-time payments after their mortgages were modified.

"Reducing principal is another controversial part of the plan," Trulia's Fernandez said.

Details of the program came as First American CoreLogic Inc., which tracks home values and mortgage statistics nationally, announced that 20 percent of borrowers in the United States were officially "under water" - meaning that the value of their property was lower than the balance of their mortgage.

More than 70 percent of underwater mortgages are in five states: California, Florida, Nevada, Michigan, and Arizona.

The eight-county Philadelphia area continued to fare better than the nation as a whole, with just 5.4 percent of borrowers under water, First American CoreLogic said.

The Obama administration's program probably will not do anything immediately to help the overall housing market by loosening credit, said Jacob Benaroya, president and managing partner of Biltmore Capital Group, a Waldwick, N.J., bulk buyer and seller of nonperforming mortgage portfolios.

"The banks and investors will only be likely to extend credit once housing prices begin to stabilize," Benaroya said. "And the new mortgage-modification plan will not be able to save every American family with foreclosure looming over their heads."