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January 26th, 2010

Mortgage Relief for the Unemployed

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Pennsylvania continues to prove itself as one of the most proactive states at preventing foreclosures. The shortfalls of the Federal loan modification program are vast and very well documented; besides its inability to produce permanent modifications, HAMP has done little to help unemployed borrowers because of income qualifications.

Pennsylvania’s Homeowners’ Emergency Mortgage Assistance Program was created back in the 1980’s in response to massive job loss in the steel and coal industries, and has once again proved successful in the wake of the latest housing crisis:

Launched 26 years ago, the Pennsylvania plan has disbursed more than $453 million in loans and helped more than 43,000 borrowers keep their homes, according to the Pennsylvania Housing Finance Agency, the program’s administrator. About 25% of loans are eventually written off because borrowers fail to repay them, the housing agency says, well short of the redefault rate for modified home loans. “I was pleasantly surprised it’s that low given the nature of the program,” says PHFA Executive Director Brian Hudson.

The Pennsylvania program, which has received bipartisan support in the state, doesn’t involve modifying existing mortgages. Instead, homeowners in financial distress receive either one-time loans that allow them to catch up on missed payments or continuing help with their mortgage payments for up to 36 months. The money is paid directly to mortgage companies and must be repaid when borrowers get back on their feet. Funding for the program comes from state appropriations and repayments of earlier loans.

What we find so ironic about the Pennsylvania program is that the strategy of paying down debt via up front cash is something we had kicked around at HSH back in the early part of 2009 when President Obama first announced his housing programs. It makes perfect sense if you think about it: The lender’s requirements are met, the borrower’s problem is solved, the costs are known, and there’s not expensive bureaucracy to manage.

Costs and Criticisms

Ruth Simon of the Wall Street Journal writes that the costs associated with the PA plan could prevent it from going national:

Cost would be a factor in any effort to expand the program nationally. The Pennsylvania program spends on average $10,500 per borrower. A record 10.04% of mortgages nationwide were delinquent in December, according to LPS Applied Analytics.

Assistant Treasury Secretary Michael Barr, who is overseeing the federal modification program, says the administration continues to look for ways to address unemployment. The Pennsylvania effort “is not a program that’s been especially large or reached large numbers of people, but on the margin it has been helpful,” he said.

Why can’t the PA plan work for large numbers of people? If Mr. Barr is concerned about the “high” costs associated with the PA program, consider this: the $10,500 spent on each PA borrower is darn close to what Washington is already spending on each Federally-modified borrower — if not less. Lenders, servicers, and borrowers are each being paid incentives to modify loans. Servicers are receiving up to $3,000, borrowers up to $5,000. That’s $8,000 right there, and excludes any per loan subsidies, administration costs, and promotion costs. It’s also worth noting the fact that PA loans must be repaid, where as Federal mods do not. Right there, the costs of the two plans are extremely similar.

Does anyone know the estimated cost to the taxpayer for each loan modified under HAMP? We looked around but couldn’t find a reliable number. If so, let us know where you found it.

Next week, HSH.com will address the lack of Federal support for unemployed homeowners facing foreclosures in a website article titled “Mortgage Help for the Unemployed.” The article will appear under “Loan Modifications and Help” in our Articles and Information section at the bottom of our main page. You can also look out for the link on the blog.

For More Information on Pennsylvania’s Foreclosure Efforts, Please Read:

Philly’s Foreclosure Program Is Becoming A National Model

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6 Responses to “Mortgage Relief for the Unemployed”

  1. Gerald Says: February 1st, 2010 at 11:19 am

    Excellent article! I have always said that if the government had given the seven hundred billion
    dollars to the homeowners who were going into foreclosure instead of the banks we wouldn’t have had
    all this trouble. That probably is an over simplification, but who knows? I am just an 800 pound
    gorilla who doesn’t know anything. Gerald

  2. Tim Manni Says: February 1st, 2010 at 12:26 pm

    Hey Gerald,

    Always good to hear from you. It’s funny that you say “over simplification,” b/c part of the problem is that Washington has made some of these relief programs so complicated — chock full of stipulations and requirements — that it has worked against itself. Your solution may sound over simplified, but it probably would have worked better. Washington is revising their programs to make them simpler. For example, just take our recent posts “Changes to HAMP: Docs Required Upfront,” and “Washington Working in Reverse? Can’t Be.” The White House is making common sense changes to their programs that should have been made from the start.

    Thanks for commenting,
    Tim

  3. Marc Says: August 13th, 2010 at 10:31 pm

    It is really hard to get a real answer on what HAMP will cost per modification. When HAMP was expanded in March the estimation was it would help 4 million borrowers but the costs were to be split between the private sector and TARP funds. The government was saying $50 billion in TARP funds were available for the program.

  4. Tim Manni Says: August 16th, 2010 at 10:53 am

    Marc,

    When all is said and done I wonder if we’ll ever be able to know just “how much money we’ve spent to save how many mortgages?”

    Thanks for commenting,
    Tim

  5. BBC News America Says: October 20th, 2010 at 6:01 am

    Great blog, I really love how it’s easy on my eyes and also the info are well written. I am wondering how I may be notified whenever a new post has been made. I have subscribed to your rss feed which should do the trick! Have a nice day……

  6. Tim Manni Says: October 20th, 2010 at 9:24 am

    BBC,

    Yup, subscribing to the RSS should do the trick! Thanks for the kind words,
    Tim

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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