A few weeks back, Ira Goldstein of the Reinvestment Fund produced a study of the Philadelphia Common Pleas Court's three-year-old mortgage-foreclosure diversion program.
The program debuted as a pilot project in April 2008, as foreclosure filings citywide climbed to 8,200 a year. Since then, 16,000 homeowners, accompanied by approved pro bono counselors and lawyers, have sat down with their lenders to come to agreement on keeping their houses.
The success rate has been, to use the word employed by the experts I have asked, remarkable.
Goldstein determined that 85 percent of borrowers who had reached agreements with their lenders in the first year of the program were still in their homes 18 months later.
"That is certainly a higher percentage than the federal government's Home Affordable Modification Program," said Philadelphia economist Kevin Gillen, adding that HAMP's re-default rate "is not only quite high, but the program is also quite expensive."
Gillen, vice president of Econsult Corp., said he was certain that one reason for this relative success is that Philadelphia's housing market is not nearly in as dire shape as markets in the Rust Belt and the Sun Belt.
"We don't have nearly as many people underwater on their mortgages [owing more than their houses are worth], and those that are underwater are by a much smaller margin because house prices here haven't fallen as much."
Although 8,200 foreclosure filings in a year seems like a lot, some metro areas in California, Nevada, Arizona, and Florida have seen four or five times that number in a single month, for many months.
In some of those areas, prices have fallen 30 percent to 60 percent or more since the real estate bubble burst in 2006, while Gillen calculates this region's cumulative loss at 15 percent from August 2007 levels.
"We should still be proud of the fact that we have a foreclosure-mitigation program that is not only more successful than the federal government's, but cheaper as well," he said.
How cheap? From $3.5 million to $4 million of the city's annual federal block grant allocation is dedicated to housing counseling, with additional funds going to legal representation and the SaveYourHomePhilly hotline.
I've mentioned many times in the past that Congress is considering cutting HUD funds for housing counseling, something that could hurt the foreclosure- diversion program.
RealtyTrac chief economist Rick Sharga said that if Goldstein's numbers are correct, "the program has been enormously successful."
He echoed Gillen's observations on comparable mortgage-modification programs, saying that most historically have had a re-default rate of more than 30 percent, and that the early HAMP modifications had a failure rate between 60 percent and 70 percent. Re-defaults occurred much earlier than 18 months, he said.
One reason the Philadelphia program is so successful, Sharga said, "could simply be that the lenders did a very good job screening out the borrowers most likely to re-default, which would have dramatically improved the chance of success for the borrowers who qualified."
For his part, Goldstein said, what he didn't expect to find in his research was that there were no real differences in access or outcome based on the racial or ethnic composition of the area people lived in.
"This, to me, was unexpected because we are accustomed to seeing disproportionate adverse results in many sectors of the housing and mortgage markets by race/ethnicity," he said.
"The program seems to work as well with those with lower-valued homes as higher."
On the House:
Inquirer real estate writer Alan J. Heavens is the author of "Remodeling on the Money" (Kaplan Publishing). His home improvement column appears Fridays in Home & Design.
"On the House" appears Sundays om The Inquirer. Contact Alan J. Heavens at 215-854-2472, firstname.lastname@example.org, or @alheavens at Twitter.