A month after passing a $700 billion bailout designed to benefit the reeling financial sector, the federal government is grappling with how best to directly help strapped consumers at risk of losing their homes to foreclosure.
At the end of the third quarter, one in every 500 homes in Illinois was in some stage of the foreclosure process, according to RealtyTrac. The number of homes in foreclosure was almost 50 percent higher than in the same period last year.
That pattern is playing out nationally, creating a sense of urgency because foreclosures not only affect troubled borrowers but also their neighbors, whose home values are reduced by distress sales.
However, the complicated structure of mortgage financing, the fragile state of the lending industry, the voluntary participation by lenders in most programs and the fact some can’t afford their homes regardless of the terms has delayed implementation of a rescue plan.
Housing experts say for any national program to be more than mere window dressing, it has to have more than a trickle-down effect on consumers.
“The good news about all these programs is it’s giving people a sense of hope,” said Christen Wiggins, director of innovation, evaluation and public policy at Neighborhood Housing Services. “Whether or not the bailouts and rescue packages are designed to get to the homeowners, that’s the question. I think they want to make this work.”
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Government efforts
For the past two weeks, the Federal Deposit Insurance Corp., Treasury Department and White House have discussed various programs but said little publicly.
One proposal floated by the FDIC would assist 3 million homeowners in danger of foreclosure by offering up to $50 billion in government guarantees to lenders who modify mortgages. A plan was expected last week, but none was announced.
“It’s not like there’s just one plan out there, and we’re all trying to make that one plan work,” said Treasury spokeswoman Jennifer Zuccarelli. “We’re looking at a number of things.”
The sticking points appear to be determining eligibility for the program, while also being fair to taxpayers who are current on their mortgages.
“It’s more complicated than people would think when you start digging into the issues as to who would be deserving,” White House press secretary Dana Perino said at a briefing Monday. “And you can imagine that one neighbor might feel slighted if they’re making their payments on time, but their other … neighbor gets a cut in their payments. How do you deal with all of that? And we’re mindful of it, and that’s why we’re taking some time.”
Banks
JPMorgan Chase last week announced expansions to its loan-modification program that will help 400,000 eligible at-risk families by modifying $70 billion in mortgages. The bank also said it would not start foreclosure proceedings against any more homes for as many as 90 days. The program, which involves interest rate reductions or deferral of a loan’s principal, is not intended for borrowers in the foreclosure process, but a spokesman said the bank will take one more look at those mortgages. In addition to benefiting Chase customers, it will assist former customers of Washington Mutual, now owned by Chase.
Meanwhile, Bank of America is readying details of a loan-modification program that will begin Dec. 1 and benefit up to 11,000 troubled Illinois borrowers of its Countrywide Financial unit.
Other programs
Local, state and federal entities also have in place programs to stave off the foreclosure crisis, but the results to date have been uneven. Hope for Homeowners, which began Oct. 1 and was designed to swap risky mortgages for fixed-rate loans, has been slow to take off, according to trade publication Housingwire.com.
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mepodmolik@tribune.com
Rescue plans won’t benefit all: A growing number of rescue plans are being floated, but there’s no way to help consumers who don’t have a steady income stream. For a look at some options for troubled borrowers, go to chicagotribune.com/housingadvice
