150K have refinanced loans under program, but fewer than 2,000 truly needed the help
Last August, President Bush promised to help homeowners who had fallen behind on their mortgage payments refinance with stable government-insured loans. This month, officials asserted that more than 150,000 people had benefited.
But federal statistics show that fewer than 2,000 homeowners at risk of foreclosure have been helped by the program, which is run by the Federal Housing Administration. Most people who have refinanced are homeowners who have made their mortgage payments on time, not the borrowers in crisis who were the targets of the president’s plan.
Housing officials, who initially expected 60,000 or more delinquent borrowers to benefit, say they greatly overestimated the demand.
But they say the program has helped people who were anticipating difficulties in paying their mortgages. Such homeowners were able to refinance before they fell behind, officials say.
”They came to us before they got into trouble,” said Stephen O’Halloran, a spokesman for the Department of Housing and Urban Development, which oversees the FHA. ”We’d rather have them come to us before they fell behind on their loans.”
But some lawmakers and industry analysts say the statistics prove the program has failed to help the most vulnerable homeowners and, consequently, has failed to ease the foreclosure crisis significantly.
Lawmakers estimate that at least 1.5 million people have fallen behind on their mortgage payments. Yet from October 2007 through the end of March, only 1,729 delinquent mortgages were refinanced by FHA, housing statistics show. Officials project that 4,000 such mortgages will be refinanced by the end of September.
Scott Stern, who runs Lenders One, an alliance of mortgage bankers based in St. Louis, called the program’s record with the neediest homeÂowners ”a tragedy.”
”FHA is helping borrowers who aren’t currently in trouble, and that is fine,” Stern said. ”But there is a specific subset of borrowers right now who are in trouble. The program needs to be helping people who need the help immediately.”
Housing officials say they have worked hard to reach such borrowers. In August, the program was tailored toward low-income homeowners who were falling behind because of interest rate increases on their adjustable-rate mortgages. The officials say that interest rate cuts by the Federal Reserve reduced the number of such people.
Homeowners who were not delinquent on their loans, however, were hearing about the FHA’s refinancing programs for the first time as HUD expanded its outreach. The phones at FHA started ringing as consumers and lenders tried to get more information about the new program. FHA Commissioner Brian Montgomery said that until recently, ”we were almost an afterthought for many borrowers.”
The publicity surrounding the program led to a surge of refinance business for FHA, mostly from homeowners in good standing with their mortgage companies. From October 2007 through the end of March, FHA refinanced 131,881 conventional loans. Only 43,397 conventional loans were refinanced in the period a year earlier, statistics show.
This month, the Bush administration announced that it would broaden the eligibility criteria for FHA Secure to help larger numbers of troubled homeowners.
Under the original program announced in August, homeowners were eligible to refinance only if they were current on their mortgages before their interest rates spiked. Under the new plan, homeowners who fall behind because of extenuating conditions - lost jobs, declining wages, family illnesses - are eligible, regardless of whether their rates have increased.
Officials say the change would allow an additional 100,000 people to refinance this year. “We’re trying to figure out how to serve consumers caught up in economic circumstances,” said Meg Burns, director of FHA’s single family program development. Advocates for homeowners say the changes represent some progress, but not enough.
FHA still requires borrowers hoping to refinance to have made 10 on-time payments in the 12 months before they went into default. That will prevent many overextended borrowers from participating, said John Taylor, president of the National Community Reinvestment Coalition, which helps people in underserved communities get credit.
”It’s not having a systemic impact and probably won’t, even with the expanded criteria,” Taylor said of the FHA program.
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