Short Reach for Md. Housing Aid
Wednesday, September 24, 2008
In the year since Maryland launched a series of foreclosure prevention programs, the state has helped just 88 troubled borrowers get into new loans or keep up with their payments, at a cost of about $17.9 million.
State officials say their efforts have been hamstrung by borrowers who wait too long to ask for help or are disqualified by low credit scores. Negotiations with lenders to expand the programs have stalled. The "big-picture lesson we have learned is that we can't refinance our way out of this problem," said Raymond A. Skinner, secretary of Maryland's Department of Housing and Community Development.
These are the sorts of troubled homeowners whose loans set off a financial crisis that has gripped Wall Street and now Congress, as lawmakers debate a plan to rescue financial firms by buying billions of their bad mortgages. Democrats have urged, and the Treasury Department has agreed, that the plan should include provisions for helping homeowners at risk of foreclosure.
But the limited impact of Maryland's efforts reflect the continuing struggle to fashion effective programs to help distressed homeowners. The foreclosure crisis is deeper and more problematic in many communities than expected, and creating programs for disparate groups of homeowners has challenged government, lender and nonprofit efforts.
The slow federal and industry response prompted Maryland's government to launch an aggressive effort to head off the problem itself.
Last year, the state housing finance agency began Lifeline, a program targeting homeowners current on their loans but facing an unaffordable increase in their payments. The homeowners are refinanced into new mortgages with lower payments. Then earlier this year, the agency introduced HomeSaver, a refinancing program for borrowers already up to two months delinquent. Under a third program, Bridge to Hope, homeowners are eligible for a loan of up to $15,000 to help them catch up on their mortgage.
But the refinancing programs have not made a significant impact. Since June 2007, 47 homeowners have received refinancing deals worth $11.9 million through Lifeline. Twenty-one have received deals worth $5.7 million through HomeSaver since February. Twenty have received the stopgap loans, for a total of $200,000. The state hopes to recoup that money as homeowners pay back the loans.
"We had expected to have more. As I said, we ran into a number of challenges," Skinner said. "It's just been very difficult and time-consuming to work with these refinanced borrowers."
Other states have struggled with similar programs. Even after lowering credit-score requirements and making more homeowners eligible, New York has refinanced only four borrowers since launching its program in September 2006.
"Early evidence shows they [these programs] are slow to get going," said Kil Huh, project manager at the Pew Center on the States. "States continue to grapple with how to make these programs more acceptable for a larger segment of distressed homeowners."
Maryland and New York are models for states that want to tap the $11 billion in tax-exempt bonds Congress made available this summer for similar refinancing programs, Huh said. "Over time, states are trying to figure out how to make these programs work. These early programs as they are working through the kinks could be models," Huh said.
It's still too early to know the effects of the latest federal proposals, Skinner said. "Our number one concern is our homeowners and where they will turn for help. We will continue to look for ways, either through assistance offered in the housing stimulus bill or our own resources, to provide Maryland homeowners with options."