Friday, Aug. 15, 2008

Staying afloat

There's hope, some requirements, in federal program to start Oct. 1

The nation's new housing bill will offer a lifeline to an estimated 400,000 struggling borrowers starting Oct. 1, including many in the Northern San Joaquin Valley.

So, how can you get yours?

Nothing is guaranteed, but here's the deal so far. The government will guarantee $300 billion in refinancing funds to get people out of risky adjustable-rate loans and into safer 30-year fixed loans. You'll be eligible even if you owe more than your house is worth, even if you're behind on payments.

The bottom line: The bill lets borrowers refinance their homes at what they're worth today instead of the extreme high price paid during the boom.

Still, the bill has restrictions. Here are some early details.

• The program, called Hope for Homeowners, is for people who live in their homes. This is not for investors. The key requirement is that you can't afford your mortgage. To qualify for the Federal Housing Administration rescue, your house payment must be consuming more than 31 percent of your monthly income.

• Struggling homeowners must show they did not intentionally default on their mortgage. And they must show they didn't lie about their income to qualify for it.

• If the value of your home rises again and you sell it or refinance the loan, you may have to split some of the gains with the government.

• Most important: Your lender will decide if you get this chance to refinance. Lenders, indeed, will be key to whether the program meets its goals of helping homeowners avoid foreclosure and stabilizing the housing market.

The program is important to the Northern San Joaquin Valley because a record-breaking 3,000 homes were lost to foreclosure during July, pushing the 12-month foreclosure total to more than 20,000 homes.

Mortgage defaults on those properties cost lenders about $1.1 billion in July, according to statistics released Tuesday by ForeclosureRadar, a real estate research group.

The foreclosure problems in the valley aren't likely to end soon, because a record number of "notices of default" were filed in almost all California counties this spring, including Stanislaus, San Joaquin and Merced. Notices of default are the first step in the foreclosure process.

For the homeowner rescue program to work, participating lenders must "write down" the value of loans, the principal, to today's prices. They'll have to waive any prepayment penalties. That means taking a loss.

Subprime lenders and loan servicers have been reluctant so far to write down principal. Figures gathered by the state show writedowns are less than 1 percent of loan changes among the lenders tracked.

Yet some experts said lenders, already taking huge losses when homeowners default, might work with the FHA program. It's a way for the banks to take less of a loss, said Elk Grove foreclosure attorney Jonathan Stein.

"I think lenders who already own a lot of real estate are going to be more inclined to follow through on this," he said.

In other words, refinancing will be easier than maintaining vacant homes.

One unknown is if this will work for people who bought without making down payments. These packages, called "80-20s," involved taking out one loan for the house payment and another for the down payment.

Striking a deal will be easier if both loans are refinanced by the same lender. Two lenders means both have to agree, making things more complicated, said FHA spokesman Lemar Wooley.

Where can you learn more?

Stein advised calling your lender. Tell the lender you're interested, then stay as current as possible on payments. Nothing will happen before the program starts Oct. 1.

Wooley of the FHA suggested calling a government-approved housing counselor such as the national Hope Now Alliance 888-995-4673 or the FHA 800-225-5342. The agency also has a fact sheet at www.fha.gov.