The pace of home loan modifications has been disappointing, to put it mildly. With great fanfare and billions of tax dollars, the Obama administration established a variety of foreclosure-prevention programs to help struggling homeowners stay in their homes, moves also aimed at stabilizing the housing market. But the programs have not lived up to their promise. Now the administration is increasing eligibility for homeowners, a worthy effort that may particularly benefit Floridians.
The Home Affordable Refinance program was designed for homeowners who don't have sufficient equity in their homes to refinance but would like to take advantage of lower interest rates or move from an adjustable-rate loan to a fixed-rate mortgage.
Only homeowners with mortgages that are owned or guaranteed by Fannie Mae or Freddie Mac qualify. Those already behind on mortgage payments are ineligible.
But the real barrier to participation was that the program imposed a maximum 105 percent loan-to-value ratio for eligibility. Homes that had dropped in value more than 5 percent below the mortgage amount couldn't be refinanced.
This limit wrote off huge numbers of struggling homeowners. In the Tampa Bay area, home prices have fallen 41 percent from their peak in July 2006, a story repeated to varying degrees in communities around the state and nation. It is no surprise that Fannie Mae and Freddie Mac have refinanced only 80,000 loans under the program, instead of the original estimate that up to 5 million would be helped.
Last week, the administration announced it was upping the loan-to-value ratio maximum to 125 percent. Now, a homeowner with a $375,000 loan would be able to refinance if his or her house is valued at $300,000.
Florida is second only to California in the number of borrowers underwater on their home loans, with 1.3 million. Any helping hand that gives homeowners a chance to refinance into more affordable loans or loans that won't suddenly balloon can only help the state's housing market.
Another change in foreclosure prevention is to a $75 billion program providing incentives to banks and mortgage servicers to modify mortgages of troubled borrowers. A homeowner's second mortgage or home equity loan will now be considered in modifications, giving loan originators and investors in mortgage-backed securities added incentive to adjust loans.
Stories from homeowners trying to work with their banks and loan servicers suggest that the backlogs are massive and servicers don't have the staff to handle the crush of requests. With these bottlenecks, it may not be just the eligibility rules that are the problem. But with the changes just announced, many more people can at least hope they won't end up as just another foreclosure statistic.