by Catherine Reagor – Apr. 6, 2009 12:00 AM
The Arizona Republic
There are signs that the $75 billion federal housing program announced in February is beginning to help some Valley homeowners.
During the past week, housing counselors and mortgage brokers have started to see lenders adjust the interest rates and even principal on loans so borrowers can afford their payments. Foreclosures fell across metro Phoenix in March to their lowest level in a year. At the same time, more than 3,000 pending foreclosures were canceled.
President Barack Obama announced the Homeowner Affordability and Stability Plan in mid-February, when he spoke in Mesa. The initial enthusiastic response gave way to questions and confusion, and few lenders were following the plan’s guidelines for either refinancing or modifying mortgages.
“Struggling homeowners heard about the plan and were calling their lenders asking if they were eligible, and servicers were saying no or didn’t know what the homeowner was talking about,” said Joann Hauger, director of the non-profit Community Housing Resources of Arizona. “Then last week, lenders started modifying loans.”
She said a homeowner came to Community Housing for help last Monday, and by Thursday the lender had called and offered to drop the mortgage rate to less than 4 percent for five years.
Getting help
For the first time during this foreclosure crisis, housing counselors cited multiple examples of people getting help from lenders.
Mikele Jones lost her job at a Valley title company last November. By January, she could no longer afford the $1,100 mortgage payment on her northwest Phoenix home. When Jones heard about the housing plan in February, she was thrilled.
People facing foreclosure because their incomes have been reduced are supposed to be able to have their loan modified so that their payment accounts for no more than 31 percent of their income. The government is offering lenders $500 to $2,000 for every loan they modify to prevent a foreclosure.
Under a modification, the length of a loan can be extended and the interest rate and even the principal can be lowered. Under a refinancing, only the interest rate is lowered.
Jones found a roommate to help pay her mortgage and has been working part time at a law firm. She is trying to negotiate a loan modification now.
“I have been calling my lender every week since January,” she said. “I started asking about the plan right after I heard Obama’s speech. No one at the lender, and I have talked to a lot of people there, knew anything about the plan until two weeks ago. Now we are finally negotiating.”
Loan modifications have proven difficult for lenders to do en masse because they are based on each borrower’s situation. But federal guidelines sent to lenders in mid-March appear to have helped speed up the foreclosure-prevention part of the housing program. Some lenders still aren’t offering loan modifications dictated by the plan, but have begun telling borrowers and housing counselors they will soon.
“I think lenders are finally starting to play ball,” said Dean Wegner of Phoenix-based American Financial Lending. “We are starting to hear the success stories.”
He said a Phoenix credit union recently modified a mortgage for a Valley woman receiving Social Security benefits. The credit union dropped the interest rate to 2 percent and lowered the principal to bring the woman’s monthly payment down to $435, or 31 percent of her income.
“That’s a loan modification,” Wegner said. “Unfortunately, there aren’t many Valley success stories for the refinancing part of the housing plan so far.”
The refinancing program is designed to help 5 million U.S. homeowners, but few of those borrowers will be from the Valley. The plan helps only people whose loans are worth no more than 105 percent of the value of their home. That leaves out a lot of homeowners in metropolitan Phoenix, where home values have fallen 45 percent since the market peak.
More help needed
Despite the drop in Valley foreclosures last month, pre-foreclosures, or notice of trustee sales, hit a new high.
More help is needed, housing experts say, so the 10,000 pre-foreclosures filed last month don’t become foreclosures.
Foreclosure moratoriums by big lenders helped push Valley foreclosures down to 3,377 in March, reports the Information Market.
Foreclosures hit a record 5,200 in February.
Foreclosure cancellations, which can be the direct result of loan modifications, jumped to 3,100 last month from 1,800 in February.
“Modifying a loan can be a very tedious process that can take 60 to 100 days,” said Jay Luber, president of Phoenix-based Galaxy Lending Group, which offers loan modifications through its mortgage broker’s license. “Some lenders’ servicers can be impersonal and cold. It’s not a fun business.”
Luber’s firm recently began working with borrowers on loan modifications because he was getting so many calls from people who had tried it on their own and failed.
Sometimes the help is too slow. Valley real-estate agent Margie O’Campo de Castillo recently helped a family who couldn’t get their loan modified find a rental home.
“The couple had an unforeseen hardship, and the lender was scheduled to (force) foreclosure in mid-March,” O’Campo de Castillo said. “The family moved out, and then last week found out the foreclosure has been stopped. The lender told them it was stopped due to the new Obama plan. We are all trying to figure out what to do now.”
