Another Take on Solving the Foreclosure Crisis: Loans to Jobless Homeowners

10/12/09 by John Dodds

http://www.truthout.org/10120910

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Many servicers won't offer loan modifications to the jobless.

Bankruptcy reform has been the preferred solution of many housing advocates and Democrats, but the banking lobby killed the legislation in the Senate and it is highly unlikely that it can be resurrected at this time.

However, there is a logical solution that has yet to be tried. That is to provide loans directly to unemployed homeowners to pay their mortgages until they get back to work. The state of Pennsylvania has a program enacted in the severe recession of 1983 that does just that. The Homeowners Emergency Mortgage Assistance Program (HEMAP) has provided loans to over 43,000 homeowners since 1984 at a cost to the state of $236 million. Assisted homeowners have repaid $246 million to date, which works out to a $10 million profit for the state after 25 years of helping families keep their houses. To be eligible for HEMAP, homeowners must be in default through no fault of their own and have a reasonable prospect of resuming their mortgage payments within 36 months. Repayment is a token $25 per month until the family has sufficient income to pay their existing mortgage and begin to reimburse the state.

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This seems like a real remedy - any PA DUers familiar with it?

Where do you go and what do you do if you lose your job and your home?:scared:

And how does it benefit our economy/country/families to keep up this foreclosure rate?

1. The $10 million "profit" is a far cry from the interest paid on the bonds the state sold back then to finance the scheme.

2. The state budget is too tight now to successfully sell such bonds today.

3. All this really does is add more debt to both the mortgagee and the state. It's better to let the house go and rent until the job picture improves, which could be a very long time.

"Reps. Barney Frank, Chaka Fattah, Elijah Cummings and Sen. Jack Reed have embraced this concept and introduced bills to offer loans to the unemployed. Representative Frank's TARP for Main Street bill would provide $2 billion in TARP money to make loans to pay mortgages if they don't qualify for other assistance. Fattah would set up a HEMAP style program for the nation. All would get funds directly to homeowners to get their mortgages paid.

We have tried everything else. The Treasury has already allocated far more than $2 billion to prevent foreclosures. It seems likely that much of these funds will not be spent in a timely manner by mortgage servicers modifying loans. It's time to get people's mortgages paid directly and to begin to slow the pace of home losses that are destroying families and crippling our overall economy."

The problem is that the loans, when modified, look on paper like they're originated as of the date they're modified. Formally they're new loans that pay off the old ones. Therefore the jobless don't typically qualify, unless the mortage holder is being very, very gracious.

Find a way of keeping the original date of the loan, or otherwise wrangling things so that there's no new loan origination.

As for that $10 million profit, please. 0.282% annual interest, when interest rates were typically well above 1%? The state would have been less bad off taking out bonds and putting the money into a standard savings account.