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Mortgage assistance program is growing, still being tested

BY JILL COWAN, Californian staff writer
jcowan@bakersfield.com | Tuesday, Jun 14 2011 05:00 PM

Last Updated Tuesday, Jun 14 2011 05:03 PM

Luis Cuadra has never been a big spender.

"A lot of people tell me, 'Come on, get a new car' or whatever, and I say, 'No way,'" he said.

Cuadra and his wife, Sandra, have been paying off their house for the past 10 years, and they're very careful to keep up with payments for the few bills they do have.

"We just try to stay ahead of the game," he said.

And for almost 10 years, they could.

While Sandra stayed home to care for the couple's autistic son, Kristian, Cuadra supported his family by working as a steel detailer for a local contractor.

But since commercial building has "slowed almost to zero" over the past year, Cuadra -- like so many hit hard by the recession -- hasn't been able to find the work he once did.

For Cuadra, that's where the California Housing Finance Agency's Keep Your Home California program comes in -- or might come in, depending on whether he is approved for unemployment mortgage assistance through Keep Your Home California.

Increasing the odds

Funded by the federal Hardest Hit Fund, the program is designed to help homeowners who are considered hardest hit by the recession. This theoretically includes people like Cuadra, who just need "some time to get on (their) feet again," as Cuadra put it.

California has received $2 billion in federal funding, of which about $70 million has already been distributed, Keep Your Home California program director Diane Richardson said. She expects the funds to last three or four years.

The program -- which was launched early this year and is still considered relatively new and untested -- provides four different options for struggling homeowners to modify their loans.

In addition to assistance for homeowners on unemployment, there is mortgage reinstatement assistance, a principal reduction program and a transition assistance program.

The catch, according to Katy Hudson, president of Consumer Credit Counseling Services of Kern and Tulare Counties, is that, although Keep Your Home California is a federally funded program and does provide some financial incentive for servicers to modify troubled loans, it still requires voluntary participation from mortgage servicers.

"I think the intention of these programs is great, but unfortunately, historically these programs haven't been that effective," she said. Hudson cited the Home Affordable Modification Program, a similar federal program launched in 2009, which has been widely panned.

That's why Richardson said she and CalHFA are pushing hard to add "every servicer we can add."

"It's a process," she said. "We call them repeatedly any time their borrowers call us."

To a certain extent, this work seems to be paying off. Recently, CalHFA announced in a press release that "the number of participating servicers has grown to 20 from the initial eight," and that "these 20 banks service about 80 percent of the mortgages held by California homeowners."

The waiting game

Fortunately for Cuadra, one of the new participating servicers is Guild Mortgage Company, who signed on for all four programs. Without their participation, Cuadra wouldn't have been able to apply for Keep Your Home California, even if he qualified according to the state standards.

But some, including Cal State Bakersfield economics professor Mark Evans, are still skeptical about Keep Your Home California's widespread effectiveness.

Guild Mortgage Company, along with only five other listed servicers, participates in all four of the available programs. Few of the banks participate in the Principal Reduction Program or the Transition Assistance Program.

According to Evans, principal reduction is where the program has the most potential -- and it's also where "the big banks," like Bank of America and Wells Fargo, have been less willing to commit.

"They must be reluctant to reduce mortgages, even with the PRP program putting in a dollar for each of their one-dollar reductions," he said in an email. "My guess is that they think they can prevent another large price collapse by controlling the pace at which they foreclose and put properties back on the market -- and that they are better off using this strategy than writing down the mortgages."

According to Rick Simon, a Bank of America spokesman, Bank of America has a "principal reduction pilot being conducted under the auspices of the state program," but, as he said in an email, "(they) do not believe principal reduction is a solution that should be or needs to be broadly applied."

Ultimately, whether programs actually help homeowners depends on the homeowners themselves, Hudson said.

"It's simply different for each client," she said.

Cuadra understands that "it's very difficult to be approved for a program like this."

Plus there's "another problem" in that Cuadra and his wife have legal equity on the house, so he's "still afraid (they're) going to lose it anyway."

But he said that his family can hold out for the 30 to 45 days it will take for his paperwork to go through and be evaluated.

If it means keeping the home he called "a sacrifice of almost 16 years of hard work," Cuadra will wait.