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Too Late for Those Behind on Mortgages?

After more than a year of steady declines, the number of households facing foreclosure is once again on the rise again. As a result, some housing experts fear a series of federal government plans to help struggling homeowners could fall short.

The rate of borrowers who are 60 days or more past due on their mortgage rose slightly to 6% in the fourth quarter of 2011, according to data released today by TransUnion. That marks the second consecutive quarterly increase since the rate began falling from its peak of 6.9% at the end of 2009. Though small, experts say the increases signal more problems for the troubled housing market. Indeed, some thirty-seven states had more so-called mortgage delinquencies, while nearly two-thirds of metropolitan areas had increases. “These indicators continue to provide evidence of a weak sector overall,” says Stuart Gabriel, director of the Ziman Center for Real Estate at the University of California, Los Angeles.

For homeowners who are behind on their mortgage payments, a growing number of programs provide assistance. For example, as part of the government’s settlement last week with five banks over alleged foreclosure abuses, delinquent homeowners can qualify for a principal reduction, says Jed Kolko, chief economist at Trulia.com, a real estate listing site. That would lower a homeowner’s outstanding mortgage balance and should thereby decrease monthly payments as well, he says.

But this program is strictly intended for those whose mortgage is with one of the five institutions involved in the settlement: Ally Financial, Bank of America, Citigroup, J.P. Morgan Chase and Wells Fargo, which handle payments on 55% of all outstanding home loans. Homeowners with mortgages from other institutions or those that are backed by government entities, like Fannie Mae or Freddie Mac, are excluded. Furthermore, the program hasn’t actually kicked in yet, which means those struggling homeowners will have to find a way to hold onto their home until the banks starting doling out this relief.

Homeowners who can’t afford to wait or fall through the cracks of this settlement can turn to an older government relief program: the Home Affordable Modification Program, which is open to borrowers who are either delinquent or in danger of falling behind on their monthly mortgage payments. But they’ll need to meet a host of requirements before they qualify. The program is open to homeowners who received their mortgage no later than Jan. 1, 2009 and whose mortgage payment is more than 31% of their monthly pre-tax income. They can’t owe more than $729,750 on their home and they must be employed.

Unemployed delinquent borrowers with a Freddie Mac-backed mortgage can apply for its forbearance relief program that it revamped this month, which absolves borrowers from making mortgage payments for up to a year. (Fannie Mae also offers a similar program, and it’s rolling out new changes to it in March.) That might offer homeowners enough time to find work and be able to resume mortgage payments. However, at the end of the relief period borrowers will owe whatever they didn’t pay during that time.


Going forward, rising mortgage delinquencies could add to the woes of homeowners and home values. Foreclosures dropped last year after allegations surfaced that bank employees and contractors were signing off on foreclosure documents without verifying information. With the finalized settlement announced last week, it’s expected that banks will move forward with the foreclosures that were delayed, thereby further increasing foreclosures in 2012. Should that occur, Gabriel says borrowers in those areas could see their home values decline.


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    • no recovery until home prices come back.

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