Is help on the way?

$700b bailout offers no homeowner relief

Joyce Hodge's mortgage payment rose to $3,200 a month last year when the adjustable rate on her subprime loan increased. (Pat Greenhouse/Globe Staff)

As the government spends billions to prop up troubled financial firms, Joyce Hodge doesn't understand why she can't get help to shave $400 off her monthly mortgage to avoid foreclosure.

The Roxbury mother of four has been calling her servicer for more than a year trying to renegotiate the $384,000 subprime loan, which carries an adjustable rate that could nearly double to more than 15 percent. She can't afford her payment, which jumped to $3,200 last year, and now she may lose her two-family home next month.

"I don't understand why [the banks] are being bailed out when they are the ones that caused a lot of the problems that some people in my situation are having," said the 44-year-old telephone operator. "What about the little people?"

The government has focused on helping struggling firms with its $700 billion rescue plan, but talk about helping distressed homeowners has been largely that - talk. Many politicians and housing experts say lenders aren't acting quickly enough to help millions of homeowners who are racing against the clock to save their homes. Proposals are coming at an accelerating rate and include implementing an across-the-board 5.25 percent mortgage interest rate, forcing lenders to renegotiate the terms of loans, and providing a government guarantee to a large swath of troubled loans.

One national program promising to help has had a slow start. Federal officials on Oct. 1 started Hope for Homeowners to help borrowers whose loans are worth more than their houses because of the slumping housing market. The program would help them refinance into affordable 30-year, government-backed loans.

But only eight banks have signed up to participate in Massachusetts, and no loans have been approved anywhere. Officials from the US Department of Housing and Urban Development say the program is too new to be judged.

Meanwhile, borrowers at risk of foreclosure are clamoring for help. Calls to the Homeowners HOPE Hotline, a free national counseling service, have nearly doubled to about 8,000 a day.

"It is confusing to people when they need to get help and they are not getting it," said Virginia Pratt, a foreclosure prevention counselor for the Jamaica Plain-based agency Ensuring Stability Through Action in Our Community. "People were given loans they could never afford, and they are not able to get help that is supposed to be out there."

The problem is likely to get worse. An estimated 7.3 million borrowers are expected to default on their first mortgages between 2008 and 2010, and 4.3 million of them are expected to lose their homes, according to Moody's Economy.com. In Massachusetts, 9,609 foreclosure deeds were recorded from January to September, up 72 percent from the year before, according to real estate tracker Warren Group.

The Federal Deposit Insurance Corp. and the Treasury Department now are negotiating a plan that could involve a government mortgage guarantee for millions of homeowners. Representative Barney Frank, the Newton Democrat who chairs the House Financial Services Committee, called this proposal the federal Hope for Homeowners programs on steroids.

"This now looks like a more liberal version," Frank said, adding that the new plan "is fine with me."

Frank has proposed the government spend as much as $100 billion from the bailout to buy back mortgages at current appraised value to help troubled homeowners. Republican presidential nominee John McCain supports a plan to use $300 billion to buy troubled loans and restructure them into more affordable, fixed-rate, government-backed mortgages. Democratic nominee Barack Obama supports legislation to change bankruptcy laws so that judges could order lenders to modify loans.

Many government officials and housing experts say lenders aren't doing enough and new changes must be mandatory and en masse. In order to help homeowners, lenders can write down the size of the mortgage, reduce the interest rate, or extend payments.

Bank of America this month disclosed a program that would modify troubled mortgages with $8.4 billion in interest rate and principal reductions for nearly 400,000 Countrywide Financial Corp. customers nationwide. The program, slated to start Dec. 1, was developed with state attorneys general to help Countrywide borrowers who financed their homes with subprime loans or option adjustable-rate mortgages before Dec. 31, 2007.

HOPE NOW, a private sector alliance of mortgage servicers, counselors, and investors working to prevent foreclosures, said it helped 212,000 homeowners avoid foreclosure in September through loan modifications.

But lenders, who say they prefer to avoid foreclosures because they are costly, face challenges to providing help. Frank said some banks have been reluctant to participate in the Hope for Homeowners program because of accounting requirements. If they restructure loans by reducing the principal, it lowers the value of their overall assets, forcing them to raise more capital to cover losses.

Lenders also face a question of who has control of the majority of toxic loans. Many mortgages were packaged as investments by Wall Street firms and sold as securities. Ownership interests in those pools of mortgages can be split among dozens, sometimes hundreds, of investors.

Officials from America's Servicing Co. said lenders nationwide contact customers with subprime loans but only 20 percent respond. The company, which is owned by Wells Fargo Home Mortgage, services the loan of Hodge, the Roxbury mother.

Ed Delgado, a senior vice president at Wells Fargo Home Mortgage, would not speak about Hodge's loan, but said his company has "some degree of latitude" to renegotiate loans. He also said lenders will modify most loans for customers who have subprime adjustable-rate mortgages.

"It's a horrible thing to say, but the reality is not every home is going to be saved," Delgado said.

Hodge says her adjustable-rate mortgage started at 8.625 percent with the potential to nearly double. She bought her house in 2000 for $207,500 and refinanced in 2006, in part to pay off bills. She said she signed documents thinking she was getting a 7.5 percent rate - with payments she could handle.

So far, she hasn't been able to renegotiate to a monthly payment she can afford. She says she can't make the current payments on her $25,000 salary, help from her boyfriend, and $1,100 a month rent on the first-floor unit.

"I've been trying to tell them I can't afford these monthly payments," she said. "I want to get my loan current and pay my mortgage and be able to stay in my house."

Jenifer B. McKim can be reached jmckim@globe.com