Refinancing programs omit many borrowers
Mass., other states limit their focus
By Binyamin Appelbaum Globe Staff / November 21, 2007
Eight states including Massachusetts have pledged almost $900 million this year to help borrowers replace unaffordable mortgages, but the states collectively have refinanced fewer than 100 people, a Globe survey found.
In Massachusetts, where the Patrick administration introduced a $250 million program in July as a "big piece" of its efforts to limit foreclosures, not a single loan has been refinanced.
In Maryland, the first state to create a refinancing program, officials have found it so ineffective that they are considering shutting it down. The program has made just nine loans in about a year.
A leading advocacy group said the programs simply aren't able to help most borrowers. "They're very well intentioned," said David Berenbaum of the National Community Reinvestment Coalition, "but these new products aren't fitting the needs of the consumers we see."
The vast majority of the applicants aren't eligible for refinancing. They have either fallen too far behind on their payments, have badly damaged credit, or simply owe more on their loans than the value of their homes, making refinancing effectively impossible.
In Massachusetts, more than 3,500 people have called seeking help, but only about 30 passed two stages of screening and were referred to lenders to begin the actual refinancing process. None have received a loan as yet. Ohio initially expected to serve one of every three applicants; officials say they have so far helped one in 15.
The state programs, which work in similar fashion, do not lend money directly to homeowners and are not funded with tax dollars. Instead, qualified applicants are referred to traditional lenders, who can resell the mortgages they make to state housing finance agencies. Because the agencies are assuming the lenders' risk, borrowers are able to qualify for lower rates and payments than they otherwise would receive.
But the programs primarily were designed to help only a portion of the population with problem mortgages: those who can make their payments now, but are facing unaffordable rate increases.
"It was a great program for somebody who was thinking ahead," said Tonna Phelps, director of Single Family Housing at the Maryland Department of Housing and Community Development. "The problem is that people aren't thinking ahead, so now we have to go back to the drawing board."
While the programs struggle, new states keep jumping in. Connecticut, New Jersey, and Pennsylvania all announced refinancing programs within the last month, totalling almost $300 million.
The stalled state efforts highlight the general difficulty of helping homeowners avoid foreclosure: Officials have only a short time frame to act before borrowers fall too far behind to be helped. Yet the circumstances of each loan are unique and complex - "Like snowflakes," said one official - making it is impossible to process cases routinely. Moreover, lenders often must be persuaded to accept a financial loss to make the refinancing possible.Continued...