By ALAN ZIBEL, AP Real Estate Writer
WASHINGTON – The Obama administration expanded its $50 billion mortgage aid program on Thursday, announcing new measures that would help homeowners avoid a foreclosure if they don't qualify for other assistance.
The new initiatives are expected to streamline the process of selling a home that is worth less than the mortgage, or transfer ownership of a home to the lender. Both options will still ding the homeowner's credit score, but less than a foreclosure.
Since the program, called Making Home Affordable, was launched in March, Mortgage companies have made more than 55,000 offers to modify borrowers' loans.
"We're seeing the first signs of homeowners being able to take advantage of lower monthly payments that the program makes possible," said Treasury Secretary Timothy Geithner.
While the number of success stories is growing, it pales compared to the rate of new foreclosures, and many housing counselors across the country are complaining that the Making Home Affordable is taking off slowly.
"Our experience at the ground level has been, so far, frustrating," said Michael van Zalingen, director of homeownership at Neighborhood Housing Services of Chicago, a counseling group. Entry-level employees at mortgage companies, he said, are either steering borrowers away from the plan or are entirely unaware of it.
There are, of course, lucky homeowners like Daniel Iturriaga, 45, a warehouse worker from Compton, Calif. Working with a counselor from Springboard, a nonprofit counseling group, Iturriaga was able to get JPMorgan Chase & Co. and mortgage finance company Fannie Mae to modify his home loan.
He's going from a monthly payment of about $2,300 to about $1,275. After a three-month trial period, it should be final in mid-June.
"It's a long process, but I still have a little hope to stay in my home" said Iturriaga, who bought his home for about $400,000 in 2005 and has seen houses on the same block sell for about half as much. "I'm pretty happy."
However Guy Cecala, publisher of trade publication Inside Mortgage Finance, doesn't expect to see large volumes of loan modifications before July or August. "The basic problem is that the program is very complicated and involved to set up," Cecala said.
The government program, unlike others before it, requires numerous changes to how the mortgage industry does business. To get a loan modification, borrowers must provide proof of their income and send in a letter stating why they need help.
So far, 14 companies that service about three quarters of the mortgage market have signed up and will be paid for each loan they modify.
Since the program involves taxpayer dollars, "you want the rigor," said Faith Schwartz, executive director of Hope Now, a mortgage industry group formed in response to the foreclosure crisis. "This is a very well-thought out plan," she said. "People have to be a little bit patient."
But Rose Inman is out of patience and out of time. Aurora Loan Services is set to foreclosure on her home overlooking Seattle's Puget Sound on Friday.
Inman, 58, has lost two jobs, one with a manufacturing company, the other with the City of Seattle. Since then, she's been working as a human resources consultant, but making much less money.
Despite numerous calls, e-mails and letters, she says she's only been able to have one phone conversation with a company representative.
"It's like this huge, concrete thick wall that you cannot get through," she said.
Last week, Aurora joined the Obama administration's loan modification program. The Colorado-based company is in line for nearly $800 million in government incentives to modify borrowers' home loans.
"We offer a wide range of foreclosure prevention options to our customers," Deborah Munies, an Aurora spokesman, said in an e-mail, while declining to comment on Inman's case. "In cases where the customer has the ability and willingness to make a reasonable monthly payment, we make every effort to avoid foreclosure. Foreclosure is pursued only when a variety of other workout options have not been successful."
The Obama administration acknowledges that not every borrower who is behind on their loans will qualify for a modification. Officials estimate up to 4 million borrowers will get their loans modified, but housing experts like Mark Zandi of Moody's Economy.com expect the number will be less than half that.
The initiatives announced Thursday are aimed at ineligible homeowners. For borrowers who are unemployed or owe significantly more than their homes are worth, there are generally two options to avoid foreclosure.
With the lender's permission, the homeowner can sell the property for less than the value of the loan, this is known as a short sale. Or, the homeowner can sign the property title over to the lender in what is known as a deed in lieu of foreclosure.
This week, RealtyTrac reported that the number of U.S. households faced with losing their homes to foreclosure jumped 32 percent in April compared with the same month last year, with Nevada, Florida and California showing the highest rates.
More than 342,000 households received at least one foreclosure-related notice in April. That means one in every 374 U.S. housing units received a foreclosure filing last month.