States offer foreclosure rescue loans |
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"Almost all of these programs are premised on the idea that there is going to have to be some ability to pay, and they
try to match that ability with a mortgage that they can provide; but if there isn't that ability to pay, and they just can't make any kind
of mortgage work, then those will be people who the states, regretfully, won't be able to serve," he says.
That said, housing agencies are "very reliable lending partners and will probably give homeowners very good advice," Rieman
says. "There is virtually no risk of any kind of predatory lending."
States also offer foreclosure prevention programs
Opportunities to refinance burdensome loans aren't the only programs that states offer. Indeed, "a growing number of states are pursuing a
full range of policies to help homeowners and taxpayers mitigate the harm of the foreclosure crisis," the Pew study says.
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Foreclosure prevention counseling services. |
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Loans for communities that have been hard hit by foreclosures. |
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Forbearance or modification of mortgages serviced by the state housing agency. |
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States have cause to be concerned about the adverse effects of foreclosures since "state and local governments and taxpayers
likely will experience significant fiscal pain" from foreclosures, the Pew study says. That pain could result from "a serious drop in revenue"
in foreclosure-impaired states that "rely heavily on property taxes, real estate fees and sales taxes," the study says.
The rate of foreclosure starts and the percentage of loans in the foreclosure process reached new highs in the second
quarter of 2008, according to the Mortgage Bankers Association. The rate of foreclosure starts increased to 1.08 percent of outstanding loans
while the percentage of loans in the foreclosure process rose to 2.75 percent at the end of the quarter. Eight states, Arizona, California,
Florida, Indiana, Nevada, Michigan, Ohio and Rhode Island, had rates of foreclosure starts that were higher than the national average.
"The national foreclosure numbers continue to be driven by the hardest hit states continuing to get much worse. The increases
in foreclosures in California and Florida overwhelmed improvements in states like Texas, Massachusetts and Maryland," Mortgage Bankers Association
Chief Economist Jay Brinkmann said in a statement.
Federal government gives states go-ahead for refinancing programs
So far, neither California nor Florida has introduced a home loan refinancing program specifically for homeowners who are facing foreclosure. But
more states are expected to set up such programs due to the Housing and Economic Recovery Act of 2008, according to Rieman.
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| What the new law does |
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The federal government authorizes housing agencies to issue MRBs, which are tax-exempt bonds, and uses the proceeds to
finance housing programs in their locality. Two examples of such programs are home mortgages for low- and moderate-income first-time
homebuyers and construction of affordable rental housing.
"More states are now considering how they can use the new refinancing authority granted in the housing stimulus bill to
provide refinancing through the MRB program," Rieman says.
The increase in the bond cap will be divided among the states on a per capita basis, will be available for three years and
can be used for any allowable housing purpose, not just refinancing, Rieman explains. That means states can choose whether to use their
additional allocation for foreclosure-rescue loans or other purposes.
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