Separate bailout for homeowners is expected

Washington Post Sept 30, 2008

We interrupt this financial crisis with a word from its sponsor: the families who are losing homes to foreclosure.

They're still circling the drain, to pick up on Federal Reserve Chairman Ben Bernanke's colorful metaphor describing credit markets as the economy's plumbing. Right now, the plumbing is clogged with bad securities backed by bad home mortgages. The federal bailout is designed to free up the system.

A separate bailout for troubled homeowners is supposed to launch this week. The new ''Hope for Homeowners" program, passed in late July, is scheduled to go into effect Wednesday. It's designed to allow refinancing for people who cannot pay their mortgage and who can't refinance into something better because their home value is now too low to pay off the unaffordable old loan.

Under the program, those borrowers may qualify for a new 30-year, fixed-rate mortgage insured by the Federal Housing Administration (FHA) if (and it's a huge if) their current lender agrees to forgive enough of their debt so that they would have at least 10 percent equity, right now.

Lender participation is voluntary, and writing off principal is the last technique most will employ when trying to save borrowers from foreclosure. In other words, the investors who own the bonds backed by these bad mortgages don't like to write off part of the debt owed so the homeowner can avoid foreclosure. They would rather try something else first, such as reducing the interest rate or stretching out the repayment period, which causes smaller losses to them. Or they might even prefer that the home goes into foreclosure.

Bank of America, which earlier this year bought big mortgage-lender Countrywide, seems more accommodating than some other lenders. Michael Gross of BofA said the bank postponed all 1,650 foreclosures that were scheduled from Sept. 8 to Sept. 22 until at least Oct. 15 and is evaluating whether those borrowers might benefit from the new Hope refinance.

Relief will probably not arrive on the Wednesday start date. The final details of the program hadn't been published as of last week. And the folks on the front lines of the housing crisis - housing and debt counselors - certainly don't have the details.

If you're in danger of losing your home, and you think you might qualify for one of the new Hope refinances - or for other assistance, for that matter - take the initiative. Call your loan servicer and ask about the Hope for Homeowners program. And, by all means, if your lender tries to reach you by mail, e-mail or phone, respond to the outreach. He or she may have good news about your eligibility for a refinanced loan you can afford.