MELISSA BLOCK, host:
From NPR News, this is All Things Considered. I'm Melissa Block.
ROBERT SIEGEL, host:
And I'm Robert Siegel. All the attention to the Wall Street bailout has overshadowed the crisis that got it all started, but the foreclosure problem has not gone away. A new federal effort, the Hope for Homeowners program, goes into effect today. It's supposed to help homeowners who are on the brink of foreclosure to get better loans. It was created by Congress back in July as part of the same bill that led to the takeover of Fannie Mae and Freddie Mac. But as Tamara Keith reports, consumer advocates say the program is flawed.
TAMARA KEITH: Think of it as the bailout plan for Main Street. At least that's how the Hope for Homeowners program was built back in July, when Congress authorized the Federal Housing Administration to back up to $300 billion in new loans for homeowners in trouble. The idea is to help homeowners who are in over their heads, on the edge of foreclosure, people who could make their payments at first, but couldn't keep up when the rate moved higher, people like Diedre McCloud. In 2006, she refinanced her home into what turned out to be a loan she can't afford.
Ms. DIEDRE MCCLOUD: Well, two years later, the housing market crashed. The value of your homes have gone down, and now, the house isn't worth the value that it was appraised for.
KEITH: Because she's upside down on her loan, she can't refinance. And now, the interest rates are adjusting. She's drained her savings and 401K and is afraid that soon, she won't be able to stay current on her payments. But she isn't all that excited about the Hope for Homeowners program. She doesn't figure she'll qualify. She's asking her lender to modify her existing loan.
Ms. MCCLOUD: If my payments was put to a reasonable spot that I can afford right now, I can guarantee that it would be that way for the rest of the remainder. It won't be going to foreclosure. That I can guarantee. But at the rate they're going, they're like, well, see, we don't know. And I think that's just ludicrous.
KEITH: Those who qualify for a Hope for Homeowners loan would trade in their adjustable rate mortgages for a 30-year fixed rate loan insured by the FHA, and the loan amount would be 90 percent of what their home is now worth, meaning, lenders would have to, in some cases, cut tens of thousands of dollars from what homeowners owe.
And lenders aren't the only ones involved in the decision, since many of these mortgages were securitized and sold to investors who now have a say. Chris George, president of CMG Mortgage, a mid-sized mortgage bank in California, says he expects huge write downs won't work for some lenders, but he says homeowners could he helped anyway.
Mr. CHRIS GEORGE (President, CMG Mortgage): It may not be that you end up refinancing your house under this program. But you may end up having a very good dialogue with your lender that ultimately gets you to a place where you can afford to stay in your home.
KEITH: But Bruce Marks, CEO of the nonprofit Neighborhood Assistance Corporation of America, isn't convinced. He says there are major restrictions on who will qualify.
Mr. BRUCE MARKS (CEO, Neighborhood Assistance Corporation of America): There are four major road blocks. Any one of these roadblocks will stop someone from refinancing because property values are too low, people's credit scores are too low. The underwriting criteria is too restrictive, and second mortgages will knock it out of the way.
KEITH: The Neighborhood Assistance Corporation counsels people all over the country to try and help them stay in their homes. And Marks says counselors will tell their clients about the program, but in most cases, he says, there will be a better option. Tamara Keith, NPR News, Washington.
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