Homeowners anxious for details

Many hope Obama program brings relief

By Jenifer B. McKim, Globe Staff  |  February 20, 2009

AnnLouise White of Dedham immediately e-mailed her mortgage broker after she heard about President Obama's ambitious $275 billion plan to help as many as 9 million struggling homeowners.

White bought her house in 2007 for $415,000 and found she couldn't refinance because her home had dropped in value. Although she can still pay her loan, the office manager hoped the new plan would help her take advantage of historically low interest rates.

"You pay your mortgage on time, and you can't take advantage of something, it is a little frustrating," White said about her efforts to refinance. "It would be nice to benefit, too."

Her mortgage broker, Amy Tierce, told her and five other clients looking for relief from the Obama plan: Wait two weeks for details.

Obama's three-part plan unveiled this week has sparked hope - but also many questions - for millions of homeowners nationwide who are trying to save their homes or gain access to attractive lower interest rates.

The Obama administration plans to issue guidelines March 4 when the program starts. Included in the plan is a change in lending rules to help as many as 5 million homeowners refinance, $75 billion to help up to 4 million homeowners most at risk of foreclosure, and a pledge of $200 billion to mortgage giants Fannie Mae and Freddie Mac to help keep mortgage rates low.

While the plan is the most aggressive yet to attack the housing crisis, many people on the front lines remain skeptical. They've witnessed a series of highly touted plans that have done little to stop the downward plunge in housing prices and the wave of foreclosures that has left neighborhoods with vacant and boarded-up buildings. More than 950 foreclosures were recorded in Massachusetts in January alone - a 22 percent increase from the same month in 2008, according to data released yesterday by Warren Group, a real estate data firm.

"We had held out hope several times, and it hadn't worked out," said Bill Minkle, executive director of the Jamaica Plain-based Ecumenical Social Action Committee, which helps lowincome homeowners. "I've not seen anything that has looked this good on the face of it, but the devil is in the details."

The refinancing plan aims to help people like White if their first loans are owned or securitized by mortgage giants Fannie Mae and Freddie Mac. Their first mortgages must also fall between 80 and 105 percent of the value of their home. About 25 percent of Boston-area homeowners, regardless of who backs their mortgage, would meet this debt-to-value criteria, according to real estate tracker Zillow.com.

Tierce, president of Fairway New England Mortgage in Needham, worries the plan won't help borrowers like White who bought homes using two mortgages. The dueling loan owners often can't agree to new mortgage terms so borrowers can't be helped. About 30 percent of Massachusetts home buyers between 2004 and 2007 bought properties with two mortgages to avoid paying a down payment or private mortgage insurance, according to the Federal Reserve Bank of Boston. Many homeowners take out two loans to afford Massachusetts' high cost of housing.

The program requires that the owner of a second lien agree to the deal, but many lenders already have balked at similar requests.

"I don't know if anybody in the Obama team thought about that, because it is a very large percent of the type of loans that were written in the last three years," Tierce said.

For the most troubled borrowers - most at risk of losing their homes - Obama has set aside $75 billion to give incentives to mortgage servicers to negotiate more affordable loans, and money to borrowers to keep current on those loans. To encourage such loan modifications, the Treasury Department will issue guidelines for lenders and require those accepting federal bank bailout funds to implement those guidelines.

Terry Moore, a managing director for the consulting firm Accenture, said the incentives will be helpful in spurring more loan modifications. But he said many servicers are under equipped and understaffed and face a myriad of challenges to helping troubled borrowers.

Some housing experts worry the plan just came too late to make a big difference.

Nicolas Retsinas, director of Harvard University's Joint Center for Housing Studies, said if homeowners lose their jobs, they likely can't hold onto their homes even with lower interest rates. "The storm cloud hanging over the plan is the economy," he said.

Jenifer B. McKim of the Globe staff can be reached at jmckim@globe.com.