Housing relief bill unlikely to help those in most trouble

Nancy Reardon

Struggling homeowners, housing counselors and market experts are asking the same question about the housing relief bill signed into law by President Bush last week: Will it really make a difference?

The bill, which could save an estimated 400,000 homeowners nationwide from losing their homes, goes into effect Oct. 1.

It is not a lifesaver for everyone, experts say. Homeowners already months behind on mortgage payments or dealing with issues that are keeping them out of work may not benefit. But families starting to struggle may see some relief.

“I think the idea of moving lenders to work a little more with borrowers is a good idea,” said Vincent Valvo, publisher for The Warren Group, which has been gathering foreclosure data since 2005. “But the problem is, it’s not going to help borrowers who don’t really have any hope.”

Among other provisions, the bill allows qualifying mortgage-payers to transform their high-interest loans into government-backed, 30-year fixed-rate mortgages. It also allocates $180 million for financial counseling and legal services for people facing foreclosure.

“One of the most important things for people is that there’s an opportunity for federally guaranteed loans,” said Daniel Crane, state undersecretary of consumer affairs. “But the biggest problem with a lot of borrowers is whether they have the income stream to make monthly payments on a loan, even if it’s modified a bit.”

The challenge for foreclosure counselors and lenders is to determine which homeowners qualify for relief under the bill. In order to be eligible, a homeowner’s monthly mortgage payment can’t exceed more than one third of his gross monthly salary.

“I have no idea where I am supposed to begin to use that bill,” said Erin Murphy of Whitman, who’s been struggling to make mortgage payments for more than six months.

Murphy refinanced in July 2005 from a fixed-rate to an adjustable-rate mortgage. Her payments almost quadrupled from $520 a month to $1,995. This winter it jumped to $2,557 a month, and will reset again in September.

“We have tried every avenue possible that has been suggested to us and no one wants to get involved with our situation,” said Murphy, 35. “So I’m a little leery about this new bill. If it does what it’s intended to do then, yes, it would definitely help us out and alleviate a ton of stress.”

U.S. Rep. William Delahunt, D-Quincy, said the bill will do a lot to stabilize the troubled housing market.

“It will give some lenders who were moving quickly some pause to work with homeowners to get through this tough patch,” he said. “This is reassurance to the lending institutions, the creditors.”

Sen. John Kerry, D-Mass., said it’s the first step toward helping families get back on their feet.

“Foreclosures are devastating thousands of families across Massachusetts and right here on the South Shore each and every day, and this housing package will throw them a lifeline,” the senator said.

But Valvo, of The Warren Group, warned that it may not be so easy to modify a lot of loans because lenders may have already sold them off to other investors.

“This isn’t Joe or Jack and Jim. These are institutional investors,” he said. “The original loaner may just be servicing it now.”

Nancy Reardon may be reached at nreardon@ledger.com.