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Mortgage loan plan for jobless falls short

Latest US aid deal to miss expectations

By Jenifer B. McKim
Globe Staff / September 24, 2011

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A $1 billion federal loan program designed to help 30,000 unemployed homeowners pay their mortgages will probably fall far short of its goal, adding to an expanding list of government antiforeclosure efforts that have failed to meet expectations.

The program is intended to provide up to $50,000 in two-year, zero-interest loans for qualified homeowners in 32 states and Puerto Rico, but critics say delays in launching it and overly strict eligibility guidelines have rendered the plan ineffective.

US Representative Barney Frank said that as much as half of the allotted funding - which includes $61 million targeted for about 1,200 borrowers in Massachusetts - will not be assigned by the Sept. 30 funding deadline. Frank, like many housing advocates, blames the US Department of Housing and Urban Development - which is administering the program - for the poor results.

“I’ve rarely been so disappointed in a government agency,’’ said Frank, a Newton Democrat.

To be eligible for a loan, homeowners must have lost at least 15 percent of their income because of “adverse economic conditions,’’ or suffered a serious medical problem. In addition, they need to be at least three months behind on mortgage payments and have received a foreclosure notice from a lender.

Applicants are being turned down for a variety of reasons, housing advocates say. Some have been told their incomes haven’t dropped enough, or that even with federal help they don’t earn enough to keep up with their mortgage payments.

Senator Robert Casey, a Pennsylvania Democrat, yesterday filed a bill that would extend the deadline for funds to be allocated until the end of the year for people who have already applied.

Meantime, Lewis Finfer, executive director of the nonprofit Massachusetts Communities Action Network, said housing advocates are urging federal officials to give applicants provisional approvals in advance of next week’s deadline.

“I’m really angry,’’ said Finfer, who has been fighting to help jobless homeowners for several years. “People are hurting and losing their homes and this program could help them and there is some significant number who can’t get helped.’’

The program’s lackluster results come at a time when thousands of Massachusetts homeowners are struggling to keep their homes. During the first seven months of the year, 6,856 mortgage holders went into foreclosure and another 4,530 lost their homes, according to Warren Group, a Boston company that tracks local real estate data.

HUD spokesman Brian Sullivan would not address complaints about how the program is being administered, but he acknowledged fewer homeowners will receive loans than originally expected.

“We are working extremely hard to make certain as many qualified families get the help that they need,’’ Sullivan said. “We are not going to reach the 30,000 threshold.’’

The loan program was approved by Congress during the summer of 2010, and unveiled with considerable fanfare. It was supposed to be up and running by the end of 2010, but various logistical complications delayed its start date and the five-week application period didn’t begin until late June. The deadline to submit paperwork was extended several times.

The bridge loans were considered especially attractive because, under the program, the principal can be forgiven over time if borrowers faithfully make payments on time and stay in their homes for at least five years.

Other federal programs meant to help homeowners receive loan modifications or refinance their mortgages have also failed to do much to slow foreclosures, partly because of resistance from lenders and flaws in the plans.

Frank - who originally pushed for $2 billion in bridge loan funding - said the program should have been easier to implement, partly because it doesn’t depend on lender approval.

Federal officials last year had high hopes for the response, forecasting a flood of applicants that would require a lottery. HUD should have started accepting applications earlier, Frank said.

Laurel Miller, director of homeownership for the nonprofit Twin Cities Community Development Corp. in Fitchburg, said that of 250 people who sought loans through the program, only three have qualified. She said her four-member staff has been working 60 hours a week to process applications.

“It is discouraging for counselors as well as homeowners,’’ Miller said. “We are not able to help these people.’’

One of them, Mary Alice Lavelle of Fitchburg, learned yesterday that she was a denied a loan. Lavelle said she was counting on the federal money to ease the financial crunch she has been under since losing her job as an X-ray technician last year. Lavelle, 57, said she was told that even with a government loan she wouldn’t be able to afford the first and second mortgages she holds. But federal officials didn’t take into account the wages she now earns as a massage therapist, Lavelle said.

“To me, it’s like, ‘We have this money, but we don’t want to give it to you,’ ’’ she said.

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