By Mary Morrison

October 25, 2011

 

A federal program to modify delinquent home loans is helping more struggling local homeowners than it did last year but still not enough, according to local housing advocates.

 

More than 35,700 Chicago-area home loans were modified permanently through the federal Home Affordable Modification Program (HAMP) through August, up 53% from the year earlier, according to the U.S. Treasury Department. Under the initiative, mortgage servicers decrease monthly payments by reducing interest rates or extending loan terms.

 

Yet the program is still coming up short amid a weak economy and job market and a housing market still on its back.

 

“There’s still a lot of demand not being met,” said Katie Buitrago, policy and communications associate at Chicago-based Woodstock Institute.

 

More than 2.5 million loans nationwide are eligible for HAMP and only about 30% of those have been modified. Local data are not available, Ms. Buitrago said.

 

Nationally, the program “has been beset by problems from the outset and, despite frequent retooling, continues to fall dramatically short of any meaningful standard of success,” according to a January congressional report.

 

HAMP is one of several federal initiatives intended to help distressed homeowners avoid foreclosure. On Monday, the White House announced changes to the Home Affordable Refinance Program aimed at helping borrowers refinance homes that have lost so much value that they’re worth less than what’s owed on them.

 

The changes relax eligibility criteria to include homeowners who owe more than 125% of their homes’ value. One of four Chicago-area homes with mortgages is “underwater,” with loans that exceed their value, according to CoreLogic, a Santa Ana, Calif.-based housing data firm.

 

Government-run programs aren’t the only option for distressed borrowers. More homeowners who are ineligible for programs under the Making Home Affordable umbrella are having success working out modifications directly with their lenders, said Ed Jacob, executive director of Neighborhood Housing Services of Chicago Inc.

 

In the past three years, the Chicago-based non-profit has helped about 1,500 families modify their loans, with roughly two-thirds through HAMP modifications and one-third through proprietary modifications with lenders.

 

The trend recently has been toward proprietary modifications, with approximately 54% now modifying through HAMP and 46% through non-HAMP programs, Mr. Jacob said. Proprietary modifications have fewer compliance hurdles.

 

“They’re a lot more flexible,” he said.

 

Mr. Jacob and other housing advocates are most optimistic about Hardest Hit, a $345-million federal program announced last month that provides unemployed or underemployed homeowners up to $25,000 to pay delinquent mortgage payments and keep them current.

 

“That really is much more effective because it addresses the key reason people go into foreclosure, which is loss of income,” Mr. Jacob said. “We don’t get out of this mess until the unemployment rate goes down; the best housing strategy is higher employment.”

 

There is no data yet on how the program, announced in September, has fared so far.

 

Other efforts, such as a “short re-fi” program by Chicago-based Mercy Portfolio Services, focus on buying distressed loans at a discount, altering them and selling them.

 

Related story: Mercy Housing launches foreclosure-prevention program with unused TARP money

 

“Current modification programs are aimed at finding the right opportunities to recast debt to an amount that’s acceptable to investors and affordable to borrowers,” said Gerald Alt, president of LOGS Network, a Bannockburn-based provider of foreclosure and bankruptcy processing. LOGS’ Heart Financial Services division processes loan modifications for mortgage servicers.

 

Yet without the economy rebounding, he said, all mortgage modification programs will likely fall short of their theoretical goals.

 

“We’re still several years out from stability,” he said.

 

Locally, 7.5% of residential mortgages were more than 60 days delinquent in the second quarter, vs. 8.0% a year earlier, according to credit reporting agency TransUnion.

 

On a positive note, Mr. Alt said, loan servicers have gotten quicker at responding to distressed borrowers. Neighborhood Housing Services is now getting responses from servicers in 60 to 90 days, said Robin Coffey, assistant deputy director.

 

“That’s a lot faster than before, when it would take six to nine months to get an acknowledgement,” she said.

 

The organization helped homeowner Genell Yankieway stay in her North Lawndale home. Ms. Yankieway, who works as a temporary employee for the U.S. Postal Service, bought the single-family home for $147,000 in 2004. In 2009, her hours and hourly wage were cut, leaving her unable to pay her $1,200 monthly mortgage payment, Ms. Yankieway said.

 

Neighborhood Housing Services worked with Mr. Yankieway’s lender, Carrington Mortgage Services, on a proprietary modification because the lender was not required to participate in the HAMP program. The non-profit successfully lobbied to have Ms. Yankieway’s interest rate lowered to 6.2% from 8.5%, bringing the monthly payment down to $900, which she can afford.

 

“It helped me keep a roof over my head,” Ms. Yankieway said.

 

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