Homeowners’ Emergency Mortgage Assistance Program Back to Life

Because of money from a lawsuit settlement, a state mortgage assistance program is being revived.

The Homeowners’ Emergency Mortgage Assistance Program is again offering help to struggling homeowners. It offers loans to those were not able to make their monthly mortgage payments, nor bring their balance current, nor subsidize payments for up to three years.

In order for borrowers to qualify for these loans, they should be living in the property as their primary residence, is struggling from financial problems that were not their fault, and have an acceptable probability of being able to continue paying.

Roughly 45,000 households have received assistance from the program since its start three decades earlier. In the last few years, the HEMAP program received funds of approximately $11 million every year, allowing it to give loans ranging from 1,500 to 1800 loans annually.

In Allegheny County, the number of loans dropped during the last half decade, from 212 in the year 2007 to 109 in 2010, and 92 in 2011. However, new loans from the Pennsylvania Housing Finance Agency, which is in charge of running the program, were stopped following the budget cut in the previous year to $2 million.

Fortunately, a multistate settlement collected a total $25 billion from the five biggest mortgage loan services in the nation. This means that a total of $66.5 million will be given to Pennsylvania as funding for the program.

According to a measure that the state Legislature accepted in June, 90 percent of the funds, or roughly $60 million, must be spent on the HEMAP program over the next three to five years. The rest will used to fund housing-related consumer protection programs, with the help of the state attorney general’s office, and also for legal assistance in terms of housing.

Gov. Tom Corbett said that the funding for HEMAP will mostly help struggling homeowners, and at the same time, it is important in the recovery of the state’s housing industry.

Growing Number of Over-Indebtedness Households

The start of the economic crisis in the year 2008 has lead to an increase in the number of households that are over-indebted on a constant basis.

While over-indebtedness is seldom brought about by a single factor, most of the debate on over-indebtedness seems to be concentrated on mortgage debt, since it is typically the largest financial commitment in terms of a consumer’s finances.

It is important to note that almost every member state in the EU has legislation offering protection for consumers in cases of possible foreclosure, together with voluntary lender forbearance schemes.

However, consumer groups are claiming that these are special times and special actions must be taken in order to solve the increasing over-indebtedness.

In addition, legislators at national and EU member state level seems to be dedicated to solve this problem. Their main objective is to attempt to avoid foreclosure. However, the solutions presently being considered at EU level in particular, might lead to several legal, economic and ethical issues.

One of these solutions is commissioned by DG Internal Market and Services’ financial services user group. London Economics is the consultant in charge and must conduct a mapping exercise of the legal environment in 17 member states to determine all formal debt reductions solutions, which permit consumers to go back to a financially sustainable life by removing some or all of their debts.

The research will concentrate on the following as possible alternatives to foreclosure like the availability and use of personal bankruptcy and datio in solutum of mortgages as legal solutions to over-indebtedness. Datio in solutum is, in other words, payment in kind and basically like the system of non-recourse mortgage loans, in which the return of the property is enough to pay back the outstanding debt.

However, advocates of non-recourse mortgage loans claim that the cause of the economic crisis in 2008 was widespread irresponsible lending and not non-recourse loans.

Demand for Mortgage Loans Increases

According to a survey conducted by the Federal Reserve this summer, approximately three out of five U.S. banks said that the demand for mortgage loans is increasing as the housing market becomes stable and mortgage rates decline to record lows.

However, even though there is an increase in mortgage demand, lenders are still strict when it comes to mortgage borrowers and small business loans as well.

The report discovered a large increase in demand from borrowers. 57 percent of banks reported an increase in demand for home-purchase loans during the last three months, which is up from 38 percent during quarter one.

Peter Newland, economist at Barclays Capital, said that the increase in loan demand proves the housing sector is gradually recovering.

In addition, the report discovered that the credit standards of banks are still tough for mortgage borrowers or small businesses. In fact, 93 percent of the loan officers surveyed said that standards for approving mortgages to borrowers with good credit were the same with the previous quarter, and 95 percent said that standards were the same for firms with lower than $50 million annual sales.

Moreover, it was stated in the report that loan terms improved for medium and large companies, commercial real estate deals, auto loans and credit cards.

According to Millan Mulraine, analyst at TD Securities, the improving credit conditions is one of the signs that the economy is recovering.

The respondents of the Fed survey included 64 domestic lenders and 23 U.S. branches of foreign banks from July 3 to July 17.

Based on the survey, banks have been careful in terms of applying the Home Affordable Refinance Program, which is an effort by the Obama administration to encourage refinancing. However, the majority of banks have restricted their participation to loan they already hold. Most banks said that they were getting more refinancing applications than they could handle.

Analysis of Reverse Mortgages

According to Shirley Krohn, a member of the California Senior Legislature advocacy group, reverse mortgages are attracting a lot of people even when other types of loans are much better. As a result, the Consumer Financial Protection Bureau said that it is important to understand the possible consequences of a reverse mortgage.

Recently, the federal watchdog gave a report before the Congress about reverse mortgages, stating that seniors need to be more aware of what loans they are taking on.

Megan Thibos, the primary author of the report, said that it is an essentially confusing mortgage product. A reverse mortgage has a negative amortization, which means the balance on the home loan decreases rather than increases. This is just one example of the many confusing features of a reverse mortgage.

A reverse mortgage is marketed for borrowers aged 62 or older who have paid off their homes are have large equity in them. That equity is used as a bank account, where the senior can draw mortgage principal in monthly payments, as a line of credit or as a lump sum.

Christina Clem, spokesperson for AARP of California, agrees that reverse mortgages can aid seniors, but they are supposed to be a last option when the rest of the options have been exhausted. Moreover, reverse mortgages are intended for people who are rich in terms of equity but poor in terms of cash. However, reverse mortgages can charge high fees and interest.

In addition, Clem said that due to the recession, it is highly possible that there will be more foreclosures based on reverse mortgages. In fact, more or less 46,000 reverse mortgages are in default in the United States. There are a lot of people who, when they took on reverse mortgages, were not aware they still have to pay property taxes and home insurance.

Mortgage Rates are Now Increasing

For a 30-year fixed mortgage, the average U.S. rate increased this week following the decreasing to its record lows in the last four weeks.

According to mortgage buyer Freddie Mac last Thursday, the rate on the 30-year loan increased to 3.55 percent from 3.49 in the previous week.

For a 15-year fixed mortgage, which a common refinancing option, the average rate increased to 2.83 percent from 2.80 percent in the previous week.

Less expensive mortgage rates has aided in a moderate but irregular housing recovery this 2012. Sales of new and occupied homes in the past declined in the month of June from May but it was higher than the same period in the previous year. Moreover, home prices have begun to increase in most of the cities.

Meanwhile, low mortgage rates can aid the economy if the number of people who refinance increase. This is because people pay less interest and this increases their money for spending. An increase in spending helps in the growth of the economy.

Unfortunately, the speed of home sales is still under healthy levels due to the fact that a lot of people are having problems in becoming eligible for home loans or do not have a large amount of money for down payments asked by banks.

Also, the slow job market could hinder some people from purchasing homes this year. Based on the data from Labor Department, the unemployment rate increased for the month of July to 8.3 percent, despite the increase in jobs offered by employers, from 151,000 to 163,000 jobs.

Last Wednesday, the Federal Reserve said that the economy is becoming weak and promised again to take actions if the job market continues to weaken. The Fed also recognized the fact that economic activity weakened during the first six months of the year, unemployment increased, and consumer spending declined.