State housing agencies exist to support affordable housing, but that doesn't necessarily mean their programs can or should rescue people in the most dire of circumstances, explains Garth Rieman, director of housing advocacy and strategic initiatives at the National Council of State Housing Agencies in Washington, D.C.
"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.
replacecontent-tcm:8-70305
Examples of other state programs include:
- Foreclosure prevention counseling services.
- Loans for communities that have been hard hit by foreclosures.
- Forbearance or modification of mortgages serviced by the state housing agency.
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.
Both 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.