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| PHOTO: SAUL LOEB/AFP/GETTY IMAGES |
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Mortgage Bailout
As President Barack Obama begins his term of office, AARP Segunda Juventud examines how the changes heralded by the new White House leadership will impact older Hispanics. Part VIII: The Mortgage Bailout.
The Garcias have struggled to pay the mortgage on their home in San Antonio since Sergio, 66, fell ill last year and was forced to take three-month’s unpaid leave from his job at AT&T. With an income of $49,000 a year, they’re trying to catch up on their mortgage payments but are still two months behind. “Getting sick completely destabilized me,” says Sergio. The Garcias, who emigrated from Mexico 22 years ago, say they were confused by the complexities of the U.S. home mortgage industry and discovered, too late, that their mortgage carried a whopping 12.6 percent interest rate. As a key piece of its economic reform plan, the Obama administration has rolled out a government program aimed at helping homeowners hurt by the sinking economy, high mortgage interest rates, and plummeting home prices. But the fine print of the administration’s program, which is already being implemented, excludes many homeowners in need and could leave out people like the Garcias. In addition, lenders have been slow to agree to modify troubled mortgages. On April 15, nearly six weeks after the White House rolled out the program, six major mortgage lenders signed contracts with the Treasury Department agreeing to participate in its mortgage modification program. The lenders who signed agreements were Chase Home Finance, a division of J.P. Morgan Chase; CitiMortgage, a division of Citigroup; Wells Fargo; GMAC Mortgage; Saxon Mortgage Services; and Select Portfolio Servicing—the first of what the administration expects to be many lenders to participate in the program. These six are eligible for up to $10 billion in incentive payments for helping struggling borrowers save their homes. “These programs are beginning to work... but we still have some servicers who are pulling in some staffing and funding,” said Department of Housing and Urban Development Secretary Shaun Donovan. He warned banks that they would not receive any more bailout funds unless they joined the program. Hispanic Homeowners at Risk
The concern among older Hispanics is not unfounded. The Center for Responsible Lending, a national nonprofit group based in Durham, North Carolina, predicts there will be more than 2.4 million foreclosures this year—one every 13 seconds. More than 400,000—or about 16.5 percent of those foreclosures—will involve Hispanic homeowners. The Loan Modification Program
Making Home Affordable Free counseling in English and Spanish by the Home Ownership Preservation Foundation’s Hotline, 888-995-HOPE (4673) Lenders could make monthly payments affordable by lowering the interest rate to as little as 2 percent or extending the loan to 40 years. After five years, slashed interest rates would approach market rate but could not increase more than 1 percentage point a year until reaching the rate cap established by the modification agreement. To prod the banks to modify mortgages, the Obama administration is offering banks subsidies and incentives, including a $1,000 payment for each successful modification. (In contrast to the administration’s carrot approach, Congress is coming at lenders with a stick, moving on legislation that would allow courts to force banks to modify mortgages for homeowners filing for bankruptcy and reduce the principal on bad loans—a key difference from the Obama plan. See below for more details.) Administration officials say the greatest incentive for banks is that they would be spared ownership of more foreclosed properties. Officials also say the program would help stabilize neighborhoods rocked by the wave of foreclosures. But community housing counselor Dario Chapa of San Antonio’s Our Casas Resident Council, who is trying to help the Garcias, says that lenders and those who service mortgages either don’t know about the program, don’t know how it works, or simply don’t want to use it. And administration officials, he says, haven’t provided housing counselors with any leverage whatsoever or at least a clear direction on how to persuade banks that they should help people like the Garcias and other homeowners in trouble. The Refinancing Program
Zapata became a U.S. citizen five years ago and thought he was sinking deep roots in his new hometown. But Zapata, who works at a Toyota parts-manufacturing plant, has recently had his hours cut and pay reduced to about $1,600 a month—a consequence of the recession’s grim impact on the auto industry. He struggles to pay his mortgage on time and would be grateful for a way to reduce that monthly bill so he can hold onto his home. “I don’t want to ruin my credit by defaulting,” he says. Wells Fargo, he adds, has not been responsive to his request for help. But Wells Fargo spokesman Jason Menke says the company is supportive of the Making Home Affordable program and has already begun to implement it. “We have been encouraging customers to gather the necessary documents so that they are ready to work with work with us to determine their eligibility,” he says. Putting Teeth Into the Program Vance Morris, director of the Department of Housing and Urban Development’s Office of Single Family Asset Management, says the agency is trying to bring its 27,000 HUD-approved housing counselors—including Chapa—up to speed on the new plan. Morris says some banks are already refinancing and modifying mortgages based on the new guidelines. But he concedes many homeowners in trouble may “fall through the cracks” because they don’t qualify for the new help or their banks won’t participate in the program. Even if homeowners qualify for help, their banks may be unwilling to give it, says Aracely Panameño, director of Latino Affairs at the Center for Responsible Lending. Panameño, a native of El Salvador, says a flaw in Obama’s plan is that it does not require banks to reduce the principal on loans that—because of plunging real estate values—now exceed the value of the properties that secured them. Those mortgages are called “underwater” loans. “The administration’s plan is a step in the right direction,” she says, “but it won’t save everyone. More is needed.” Congress is trying put teeth into the Obama plan with new legislation. It would push banks to adjust the principal on troubled loans by essentially telling lenders that if they don’t voluntarily rework loans, a court will. Obama supports the legislation, but it is expected to stall in the Senate. That leaves struggling homeowners treading water until plan details are worked out and more lenders participate in the relief program. “Unfortunately, until [the bill] is approved, we’ll see more outrage and anger and pain,” Panameño says. Links are provided for informational purposes only. AARP does not endorse, and has no control over, or responsibility for, the linked sites or the content, advertisements, materials, products, or services available on or throughout these sites. |
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