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Foreclosure-avoidance program aids some, but critics say it won’t stop state’s mortgage crisis 

LILY LEUNG • U-T 

A $2 billion state program that could save 100,000 homeowners from falling into foreclosure has provided relief to borrowers, but some critics wonder if the relief is too little, too late.

California, one of the hardest-hit states in the U.S., launched Keep Your Home California last year to help folks who’ve lost their jobs, seen their companies move away, or watched their home equities plummet from price-boom highs. The idea is to catch them up on mortgage payments, help them relocate after a short sale and cut their principal, by far the most controversial part of the program.

“Our goal is really simple: to help as many people as possible as quickly as possible,” said Evan Gerberding, spokeswoman for the California Housing Finance Agency, which runs the statewide program.

Those who pan the program say the assistance, funded by taxpayer dollars, isn’t enough to stem a crisis that shoved California into third place in foreclosure filings last year, with foreclosure-ridden Nevada and Arizona leading, based on recent numbers from Irvine-based data company RealtyTrac. The latest numbers from DataQuick show close to 9,500 homeowners in San Diego County alone were foreclosed upon from January to November 2011.

“It’s a good idea,” said SDSU real estate professor Michael Lea. “But the problem with the stock of distressed How did it start? 

A high school marching band that played at President Barack Obama’s inauguration welcomed him at a Feb. 19, 2010, town hall at Henderson, Nev. — where Obama first publicly mentioned the “Hardest Hit Fund.” The idea was to set aside money for the worst-off states in employment and home prices.

“So, yes, we need to strengthen our housing market,” Obama said that day inside Green Valley High School. “And we need to focus on job creation and getting our economy moving again.”

The U.S. government since then has awarded $7.6 billion in mortgage aid to 18 states and Washington, D.C., through the Hardest Hit Fund, with California receiving the most at $2 billion.

The money comes from the Treasury’s $700 billion Troubled Asset Relief Program, or TARP, which bailed out private companies to stabilize the country following the 2008 financial meltdown.

State plans bearing names like “Save Our Home AZ” and “Restoring Stability” in Ohio vary in 

SEE MORTGAGE • C4

 

MORTGAGE •$2billion for California comes fromfederal TARP funding 

FROM C1 

details and requirements, but most follow the same structure and purpose. 

What is it designed to do? 

•Provide mortgage aid to homeowners who have lost their jobs and are getting unemployment. The most a household can get is $27,000. •Help borrowers going through a financial hardship catch up on their mortgage payments. This is a one-time payment capped at $20,000 for principal, interest, taxes and insurance, also known as PITI. HOA fees may also be covered. 

•Help homeowners who have completed short sales or deed-in-lieu foreclosure programs relocate to other housing. The maximum is $5,000 for each household. 

• Reduce principal for borrowersgoing throughafinancial hardship and have a loanto- value ratio, or LTV, that’s more than 115 percent. The reduction, capped at $50,000, must be matched dollar-fordollar by the loan servicer. In other words, the maximum principal reduction for each household is $100,000. 

So far, only a sliver of the $2 billion in state aid, about 11 percent, has been set aside or used. State officials have until 2017 to disburse the money. 

Who’s getting help? 

The midcentury home sitting among residential distress is a rarity in Paradise Hills, a neighborhood in southeastern San Diego where about 46 percent of mortgages are under water. The area also has one of the highest foreclosure rates in the county, DataQuick numbers say. 

It’s been in the Cole family for more than 60 years, and one of the first things 43year-old Melanie Cole will tell you is that her husband, Lee, 52, was born there. She’ll also tell you they were on the brink of losing the house after they were both laid off in 2010. She was a dog groomer and he was a bike assembler for Huffy. 

Their hopes of keeping the family home revived after they discovered Keep Your Home California, which promised to cover the Coles’ $700-a-month mortgage for nine months. 

“Times are hard,” said Melanie, who gets by on her husband’s unemployment benefitsandrent froma relative. “Our religion helps us.” The Coles are among 694 San Diegans getting state aid, totaling $13.9 million. The vast majority of those borrowers, more than 92 percent, are either unemployed or going through a hardship that has caused them to fall behind on payments. It looks about the same at the state level, where more than 11,000 are being helped. 

Over in North County is Adam Alotaibi, who is just as adamant as the Coles about trying to keep his home. 

The 29-year-old Escondido resident resigned from his IT job at DC Shoes after the company’s Vista office moved up to Huntington Beach to trim costs. Alotaibi launched a rigorous job hunt that ended nowhere. 

“I made it to the third round for about 10 of them,” said Alotaibi, referring to 25 recent interviews. “It’s very competitive in San Diego.” 

Afraid he’d lose his home, he got to Googling and found Keep Your Home California. After submitting extensive paperwork, he was approved for assistance and is set to get about $1,860 in aid each month to fully cover his monthly payments until the summer. 

Unlike the Coles, Alotaibi and his wife, Alicia, are fueled with confidence about their future, particularly their new business, which they’ve been planning for years. During the turmoil, they took a chance and started Thrifty Threads Boutique, which ate up two years of savings. 

Alicia spends her days running the thrift store in downtown Vista, while Adam hunts for a job. 

“We thought ‘now or never,’ ” Adam said. “We’re rooted here.” 

Will the program work? 

Program leaders say it’s difficult to measure whether Keep Your Home California is working. 

“There’s really nothing that was in existence that we could measure against in terms of success,” said Gerberding, the spokeswoman the California Housing Finance Agency. “So we’ve just monitored the effectiveness and tried to make changes as we go along to make the programs as useful as possible.” 

Changes during the past year have included allowing in homeowners who tapped into their home equity, did “cash-out” refinances and own multiple properties. 

Still a challenge: Not all loan servicers participate in the program, and those that do aren’t taking part in all aspects of the program. For example, 55 lenders are listed, but only 12 are willing to do principal reductions, which can help homeowners lower their monthly payments. 

“Lender hesitance is difficult,” program director Diane Richardson said. 

Other potential problems stand in the way of success, two San Diego academics say. 

Even though Keep Your Home California is new, other mortgage-aid programs predate it. They include the long-criticized Home Affordable Modification Program, or HAMP, which modifies mortgage payments to bring down monthly payments. 

The national program, which started in spring 2009, has counted more than 615,000 trial modifications that have been canceled because homeowners defaulted on their trial payments, because they lacked documentation and for other reasons, based on the most recent data from the U.S. Treasury. Of those 615,000, 27 percent went on to start or complete the foreclosure process. 

Homeowners are likely to redefault in such programs, Lea of SDSU said, because some are so under water on their mortgage that they’re beyond saving. Also, a number of borrowers lied to get their loans during the boom years, so they weren’t and still aren’t creditworthy. 

Lea said the principal-reduction portion of Keep Your Home California could have the most potential of the four subprograms but is “best applied on a selective basis.” 

“You need look at the likelihood they’ll be able to make the payment at the new lower level,” he added. “I do think there are people out there … but the problem is, you can’t apply it on a mass basis because it creates a moral hazard.” 

Norm Miller, a real estate professor at University of San Diego, admires that Keep Your Home California counsels troubled homeowners, but he laments the fact that it helps certain borrowers catch up on their defaulted mortgage payments, while others are left behind. 

“It seems to be a lucky windfall gain to some borrowers at the expense of all taxpayers,” Miller said. 

A deciding factor for the state-run program is how lenders behave, because in some cases they’ve agreed to write down mortgages. 

“From the lenders’ point of view, lenders will do whatever minimizes their losses, and this may in some cases mean taking a write-down of principal, but only if they think the borrower can still handle the new modified loan,” Miller explained. 

He added: “If the borrower is unemployed or has insufficient income, the lender will likely still foreclose.” 

lily.leung@utsandiego.com 

(619) 293-1719 

 



Escondido resident Adam Alotaibi is getting help from Keep Your Home California. He and wife Alicia are optimistic. JOHN GASTALDO • U-T 

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