State, lenders develop 'rescue' loans

Homeowners facing foreclosure should act quickly before their monthly payments balloon out of control, housing specialists advise.

Most troubled loans are subprime products made available to borrowers with weak credit. The loans typically carry a low rate for the first two years, but then increase significantly, often adding several hundred dollars to the monthly payment. In a slumping housing market, home values decline, making it hard to refinance.

But special refinancing products, including those backed by the state, help owners lock in fixed-rate mortgages, providing more stability.

"We want to try to get as many people as possible to refinance," said Tom Farmer, a spokesman for MassHousing, the state's affordable-housing bank.

The Home Saver loan, a part of Governor Deval Patrick's five-point plan to combat foreclosures, aims to help homeowners with mortgage payments they cannot afford. The loan carries a fixed rate with a term lasting up to 40 years, according to MassHousing.

Twenty lenders statewide, including Eastern Bank in Lynn, Salem Five, and Metropolitan Credit Union of Chelsea, have signed on to write the loans.

"This is a rescue product," said Vidalia DiVito, an assistant vice president of mortgage lending at Metropolitan. "It takes into account a borrower's ability to pay, before they get into trouble with increasing payments."

About a year ago, Metropolitan also created its own subprime relief loan, which carries a 10-year fixed mortgage, after foreclosure notices started to surge.

"We hope we're able to help people before it's too late," said Robert Cashman, the credit union's chief executive.

Housing specialists agree early intervention is necessary.

"Some people thought they had a good mortgage product," said Marilyn Garcia, assistant director of Chelsea Restoration, a nonprofit housing organization. "But then they got a tax bill and an insurance bill, and the mortgage adjusts. They thought everything was included in the mortgage."

The agency's foreclosure prevention workshop last month drew about two-dozen homeowners struggling with how to hang onto their homes. "We wanted the homeowners to be aware of the type of regulations their mortgage has . . . so they could possibly refinance in the future," Garcia said.

Refinancing is still a hurdle, however. Many new products are geared toward borrowers who are not in default or are only a month or two behind. Danversbank, for example, has a Subprime Relief Loan Program, which provides fixed-rate loans of up to $450,000 for single or two-family homes. MassHousing provides insurance on the loans for the bank.

Borrowers must also not have missed a payment in the last 12 months, however. Since starting in August, the bank has received seven applications and approved five loans.

"We certainly try to be as liberal as we can," said Stephen Britton, a vice president of residential and commercial lending at Danversbank. "But once somebody has gotten to the point that they are 30 or 60 days behind, it may be difficult to help them. . . . It's not a cure for everybody. . . . It's really geared for people who recognize they're facing [foreclosure] in the not-too-distant future."

Kathy McCabe can be reached at kmccabe@globe.com