Struggling, but Staying in a Home By BOB TEDESCHI
AS the foreclosure crisis worsens, government officials and industry executives seem to be growing more creative in addressing the problem. Two recent initiatives allow struggling homeowners who lose their mortgages to stay in their homes and work their way back to financial solvency.
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A second initiative, in New Jersey, is spearheaded by the Federal Home Loan Bank of New York, which lends money to roughly 300 local banks in New York, New Jersey, Puerto Rico and the United States Virgin Islands to finance mortgages.
Under this new initiative, called the Housing Assistance and Recovery Program, or HARP, the Home Loan Bank lent $6 million to Magyar Bank, based in New Brunswick, N.J.
The First Baptist Church of Lincoln Gardens, in Somerset, N.J., which provides counseling services through its First Baptist Community Development Corporation, identifies homeowners who are in danger of foreclosure, then negotiates with the lender to buy out the loan.
Using proceeds from the Federal Home Loan Bank, Magyar Bank puts up 70 percent of the remaining balance. HARP representatives expect that lenders who hold the distressed mortgages will write off much of the remaining 30 percent, rather than incur a foreclosure.
After the loan has been transferred, the homeowners become renters of their home, making payments to First Baptist, which holds the new mortgage from Magyar Bank. The rent level depends in part on what the family can afford.
First Baptist then offers financial counseling to tenants, with hopes of helping them rebuild their credit scores so they may eventually qualify for a new mortgage on the same home.
According to Alfred A. DelliBovi, chief executive of the Federal Home Loan Bank of New York, one family has completed the transition from homeowner to tenant, and four more families are soon to follow.
One obstacle for HARP in some cases, Mr. DelliBovi said, is finding the current lender. Loans are typically sold to investors, sometimes repeatedly.
Meanwhile, servicers, whom investors pay to collect mortgage payments from borrowers, often have no incentive to help borrowers find the ultimate holder of a loan, Mr. DelliBovi said. “Servicers make more money on a foreclosure than when the loan is worked out,” he said.
Despite the slow going, Mr. DelliBovi said his company is already negotiating with other banks and community organizations in New York and New Jersey to set up similar programs.
http://www.nytimes.com/2008/07/20/realestate/20mort.html