Smart Borrower Blog

New Initiatives Aid Struggling Borrowers


Jul 20th, 2008 @ 5:31 PM by Alden Smith


The mortgage industry has really suffered from “creative financing” but I ran across a system in place today I felt worth mentioning.   We now see two initiatives for people who have lost their homes, but are being allowed to stay in them to try to regain solvency and get back on track.
One of these two, based in Detroit, is managed by HUD, and works with the FHA, which allows a lender to submit an insurance claim on a mortgage when it is in arrears but before it fails.  HUD in turn transfers the mortgage to a company that will service it and work with the borrower to resolve arrears and make every attempt to get back on track.

The second initiative takes place in New Jersey, where Federal Home Loan Bank of New York lends money to around 300 banks in New York, New Jersey, Puerto Rico and the United States Virgin Islands.  This money is used to finance mortgages.  The initiative, called the Housing Assistance and Recovery Program, or HARP, works with the Magyar Bank in Brunswick, NJ, and administers the $6 million in funds from the bank.  Homeowners who are in danger of foreclosure are then worked with by The First Baptist Church of Lincoln Gardens, in Somerset, N.J., who provide counseling and negotiates with the lender to buy out the loan.

These appear to be good programs, and from what I have read, are being quite successful.  The big issue for these initiatives is finding the actual lender, because they must wade through all the securities that have the mortgages in question bundled into them.  And servicers of loans, who are paid to collect mortgage payments, aren’t too willing to help either, because they can make more money off of a foreclosure than they can from a renegotiation of the loan.
I find this all well and good, and wish them luck.  I hope we see a lot of other states following suit, and that greed is put in the back pocket, at least until the economy finds an upward path, and the mortgage market is a bit more stable.  It would be nice to see all these institutions working together for a change.

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