Bush foreclosure aid falls short, critics say

Sheila Lewis is holding out for a miracle that will let her keep her home and hopes that President Bush's foreclosure-prevention program will deliver it.

The program, announced yesterday, will offer aid to about 1.2 million homeowners who face the possibility of foreclosure as their adjustable-rate mortgages begin to reset. A fraction of this group will be eligible for the highest-profile portion of the program: the freezing of introductory "teaser" interest rates for five years.

Others would get assistance in refinancing with their lenders and moving into loans secured by the Federal Housing Administration, Bush said.

Homeowners must ask for help by calling the hot line, 1-888-995-HOPE. Applicants must live in their homes, be current on their mortgage and must have taken out loans between 2005 and July 30, 2007, with rates scheduled to rise in 2008 and 2009.

Lewis is hoping that she could qualify for help. The Hilliard wife and mother of three purchased her modest three-bedroom split level home last year. But as a first-time buyer, she said neither she nor her husband were savvy enough to avoid agreeing to the adjustable-rate mortgage a broker arranged.

The family now has a loan at 11 percent interest that's scheduled to reset to as high as 14 percent next year.

"Our payments are already close to $1,400 a month, so we're not sure how we could pay something higher," Lewis said. "We're trying to keep everything away from the kids because we don't want them to know we might lose the house."

In Ohio, 200,000 mortgages will reset this year and next, with most to reset within the first two quarters of 2008, said Bill Faith, executive director of the Coalition on Housing and Homelessness in Ohio.

Faith said that typically within a few months of the reset, delinquencies and defaults start to increase, followed by an increase in foreclosures and finally sheriff's sales of the homes.

While the Bush plan will help those whose rates will reset, it won't help the millions of people who are already struggling, Faith said.

"There's nothing there in the plan for them," he said. "People are raiding their savings trying to save their homes, and many are losing their homes."

The federal plan was reached in negotiations led by Treasury Secretary Henry Paulson with the mortgage industry. The companies participating are doing so voluntarily.

President Bush admitted that the plan is not a "perfect solution," but added: "The steps I've outlined today are a sensible response to a serious challenge."

The announcement came on the heels of news that home foreclosures surged to a record high in the July-to-September period. The Mortgage Bankers Association reported that the percentage of all mortgages that started the foreclosure process in the third quarter jumped to 0.78 percent, surpassing the previous record of 0.65 percent in the second quarter.

Ohio leads the nation in foreclosures, the Mortgage Bankers Association said.

The association said 3.72 percent of the 1.6 million loans in service in Ohio are in foreclosure. More than 3 percent of the loans in service are 60 days or more past due, while 4.1 percent, or about 64,000, are 30 days past due.

Gov. Ted Strickland, who in October led an effort to address the foreclosure crisis in Ohio, says the Bush plan will help prevent foreclosure but doesn't do enough to deal with the ongoing crisis in Ohio, Strickland spokesman Keith Dailey said.

Strickland's plan calls for the 11 top subprime-mortgage servicers in Ohio to sign a "compact" promising to work out loans instead of foreclosing. The mortgage bankers refused to do so, prompting the state to announce a get-tough policy that included issuing more than a dozen subpoenas to mortgage companies as part of its effort to seek evidence of wrongdoing.

"The current foreclosure situation in Ohio has had a drastic impact on the state's economy," Dailey said. "The president's efforts will hopefully prevent more from going into foreclosure in the future, but we need to also help those who are currently struggling."

Participation by lenders in the Bush program is voluntary, and several that are active in the Ohio market,including Huntington Bank, Fifth Third Bank and National City Bank, were assessing the program yesterday.

JPMorgan Chase will participate in the plan, spokesman Tom Kelly said.

"It's one more tool for us to help borrowers stay in their homes," he said. "It creates a streamlined process. If borrowers fit within the framework of this initiative, they're eligible to have the initial rate locked in."

Kelly said Chase has modified $327 million worth of subprime, adjustable-rate mortgages since April, reaching out by phone and mail to about 10,000 borrowers. The Bush plan would simplify that process because it contains strict qualification guidelines.

In addition to the narrow window of loan origination and adjustment dates, there are other criteria for homeowners who want to qualify for the freeze. For example, borrowers' credit scores have to be below 660, and homeowners must not have more than 3 percent equity in their properties.

The hope is that the five-year freeze will buy time for the housing sales and prices to start rising again. Such a rebound would enable homeowners to refinance their current adjustable-rate mortgages into fixed-rate loans with more affordable monthly payments.

But even Paulson acknowledged the plan is "not a silver bullet."

"We face a difficult problem," he said.

But Paul Haggard, director of resource development for the Columbus Housing Partnership, said the plan can be an effective tool for lenders.

"I think it's going to have a significant effect on anyone who has an adjustable-rate mortgage," he said. "It's also important for borrowers who know they're at risk to reach out early to seek help."

Haggard said the partnership has been swamped with calls this year from homeowners facing foreclosures. He said it aided about 250 clients in 2005, 550 last year and will help about 1,000 this year.

Calls from Ohio to the Project Hope hot line established by the Home Ownership Preservation Foundation of Chicago have been coming in at more than 600 per month, the agency said.

At least one observer thinks the Bush plan sends the wrong message.

"I think it's probably laying the seeds of the next crisis," said Ken Mayland, president of ClearView Economics, near Cleveland. "When you reward bad behavior, you'll tend to get more of it down the road."

Information from the Associated Press was used in this story.

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