Rescue efforts are struggling to slow the fire consuming subprime mortgages.
So the architects of both the $50 million Connecticut Fair Alternative Mortgage Lending Initiative & Education Services (CT FAMLIES) Program and the $125 million regional Mortgage Relief Fund are now looking for more ways to lend a helping hand to more borrowers.
Launched in late December, the Mortgage Relief Fund – covering the New England states and made up from a commitment by Bank of America, Citizens Bank, Sovereign Bank, TD Banknorth and Webster Bank – has closed 10 loans, including one in Naugatuck and another in East Hartford. The remaining loans went to other New England states. The program, coordinated by the Federal Reserve Bank of Boston, targets borrowers who are paying high interest rates despite good payment histories and have at least 3 percent equity in their homes.
So far, there have been about 1,000 inquiries to the five banks, and around 50 applications filed, said Joel Werkema, assistant vice president in the Office of Communications at the Federal Reserve Bank of Boston.
“It’s a modest start, but we launched right before the December holidays and we’ve been finding that we’re learning a lot and sharing good information with each other,” Werkema said. “We’ve got a good plan in place to do a second wave of outreach and publicity. We’ve got some paid advertising that’s hopefully going to hit in the next week or two.
“We’re going to try to really target some of the communities across New England this time with the paid advertising where you’ve got a particular sort of density of subprime loans,” he added. “Some towns that you would probably assume, and rightly so, are in that boat, like Bridgeport, Conn., and Brockton, Mass., and Providence, R.I., the Lawrence and Lowell [Mass.] area, Springfield, [Mass.], et cetera.”
Similarly, the CT FAMLIES program also has had a modest start. To date, the program has accepted two dozen reservations, indicating the number of borrowers that have gone to one of the program’s participating lenders – New Britain-based McCue Mortgage Co., New Haven-based NewAlliance Bank or Waterbury-based Webster Bank – and are believed to qualify for the funds. While a reservation is on hold for up to 120 days, the lender and then the Connecticut Housing Finance Authority – the administrator of the program – examine the file to make sure all qualifying criteria are met.
CHFA is planning to revise its criteria to allow more borrowers to become eligible for the funds. One change, proposed by Gov. M. Jodi Rell, is to dump the requirement that the borrower be a first-time buyer.
There are other revisions in the works, and “she’s going to announce those in a few days,” said Chris Cooper, spokesman for the governor’s office.
“Originally, the [CT FAMLIES] goal was [to help] between 300 and 400 people with that $50 million. They haven’t come close to that, as the governor said in her statement,” Cooper added. “She does want to see some changes that will get that money out to more people.”
Opening the program to borrowers who are not first-time buyers could help. In 2007, first-time buyers accounted for 39 percent of the purchases nationwide, according to the National Association of Realtors. For the past 10 years, that figure has typically hovered around 40 percent, according to NAR.
Some state legislators, unhappy with the program’s progress, are pushing their own $100 million mortgage assistance loan program.
Sen. Bob Duff, D-Norwalk, and Rep. Ryan Barry, D-Manchester, co-chairmen of the Banks Committee, have put their proposal in a bill called “An Act Concerning Responsible Lending and Economic Security,” which was slated to have a public hearing Feb. 28.
In its final report released in November, the state’s Subprime Mortgage Task Force stated there are approximately 71,000 active, adjustable-rate subprime loans statewide, with 21,000 resetting to higher rates from October 2007 through December 2009. Of those 21,000 borrowers, only 3,000 are eligible for help, due to the CT FAMLIES requirement that the borrower be a first-time buyer, Barry said.
“We’re creating a three-tiered mortgage assistance program,” Barry said. “The governor has created one mortgage assistance program that’s just for refinancing loans that were subprime and used for the purchase of a first home – that’s it. We’re going beyond that.
“What we did is we created three different mortgage relief programs, and the first one would provide 30-year, fixed-rate mortgages at a quarter-percent above CHFA’s regular rate, which is around 5.6 percent now. And that would be able to be used for closing costs, prepayment penalties, delinquent property taxes and subordinate mortgages, obviously.”
The second tier of the plan is what Barry called the Home Equity Recovery Program.
“It’s a program that deals with people whose mortgages exceed the value of their homes,” he said. “This program allows the state to purchase loans directly from lenders, and then place borrowers in an affordable repayment agreement. I think that’s critical.”
‘Not a Giveaway’
The third component of the plan is the Emergency Mortgage Assistance Program, or EMAP, he said. The idea was borrowed from Pennsylvania, which has run its plan successfully since 1985, he added. The program offers options such as enabling borrowers to work around prepayment penalties on their mortgages, and helping homeowners keep current with mortgage payments if they lose their jobs, he said.
“It’s not a giveaway, it’s a loan program,” Barry said. “We do get a lien on the house.”
The bill advocated by Duff and Barry calls for $35 million in each of its first two years, and $15 million in each of the second two years.
“It provides a lot of consumer protections. It puts a lot of restrictions and limitations on what mortgage brokers can do,” Barry said. “And it also expands [Department of Banking Commissioner Howard F. Pitkin’s] powers to do things like put a six-month moratorium on foreclosures on a case-by-case basis, [and] to purchase foreclosed homes at a discount for resale to create more affordable housing.”
Barry said he expects the bill’s reach could go significantly further than the CT FAMLIES program.
“This can reach thousands of people because the EMAP is going to be a perpetual program,” he noted. “The repayments are going to be recycled back into the program.”
While state legislators mull expanding the government’s role in alleviating the mortgage woes, the Mortgage Relief Fund could be expanding by adding more participating banks.
“It’s quite likely over the next couple of months to expand,” Werkema said. “We’ve been working with the Massachusetts Bankers Association, and in fact had a session [three] weeks ago and a session to come where community banks, starting with Massachusetts but eventually across New England, are invited to learn bout the program, and about [Federal Housing Administration] lending which is a big component of the strategy.”
“I think sometime during March we’ll probably have a chunk of banks join in – smaller banks than the big five that started it, but that’s great,” Werkema added. “It [helps] get the word out better and in more localized communities.”
Werkema expressed optimism about the upcoming push in the weeks ahead.
“[Ten] is a relatively small number of loans so far, but it sure means a lot to the people who are getting out of these high-payment, high rate loan situations,” he said. “They’re really talking about it as changing the financial picture of their whole life. It’s good. It’s encouraging when we get that, and we’re going to keep going.”
“We think it’s a marathon, not a sprint,” Werkema added. “At the same time, we hope we can do the outreach effectively, and with a degree of urgency so that the borrowers can be reached and compelled that it’s much better to dig into this stuff now before a problem is really there.”
“Hopefully we’ll make a real dent,” he said.
