Pennsylvania helps jobless residents pay their mortgages

Pennsylvania helps jobless residents pay their mortgages

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Erin and Robert Smith had no problem handling the $2,000 monthly payment on their home ... until they lost their jobs.

The Harrisburg, Pa., couple fell behind in September 2008, a few months after their consulting business faltered in the wake of a client's bankruptcy. Their loan servicer refused to help them, instead sending them a foreclosure notice.

"All we needed was a break," said Erin Smith, 33, who feared her family of five would wind up homeless. "We knew once we found employment, we could start making those payments."

A break came in the form of the Pennsylvania Housing Finance Agency's emergency mortgage assistance program. The agency gave them a $30,000 loan to cover their arrears and real estate taxes.

The Smiths are among the 3,250 homeowners that the housing agency's mortgage assistance program saved from foreclosure last year. Created in 1983, the initiative provides loans of up to $60,000 for as long as 36 months to Pennsylvania residents suffering financial hardship, such as job loss, divorce or medical problems.

The program, which has distributed $450 million on behalf of 43,000 homeowners since its inception, has an 80% success rate in helping borrowers avoid foreclosure. And the recent housing crisis has prompted thousands to seek assistance. A record 14,000 homeowners applied for help in 2009, up from 10,000 in most years.

"If you allow people some time to find a job, they can keep their home, which saves their family, their neighborhood and their communities," said Brian Hudson, the agency's executive director.

The Smiths are a prime example. Not only did they save their home, but by the time the loan came through, Robert Smith had landed a new job. This allowed the family to resume their monthly payments.

The Pennsylvania program has come into the spotlight in recent weeks as the Obama administration searches for a way to assist the unemployed keep their homes. Thus far, that segment has not reached by the president's foreclosure prevention efforts.

"Not too many mortgage companies say we'll only take a small payment until you get back on your feet," said Linda Harvan, a foreclosure intervention counselor with Action Housing in Pittsburgh.

President Obama late last month announced a $1.5 billion initiative that gives money to the states hardest hit by the mortgage crisis: Arizona, California, Florida, Michigan and Nevada. The effort calls for the states' housing authorities to assist the jobless and those who are underwater -- meaning they owe far more than their homes are worth.

Already, officials in Nevada, California and Florida have been in touch with Hudson to learn how to replicate Pennsylvania's program. Similar efforts also exist in Delaware, North Carolina and Massachusetts.

Here's how the Pennsylvania program works: When a borrower falls behind on their payments, they receive a foreclosure notice from their lender with a list of housing counselors who may be able to help them. The counselor collects the borrowers' financial information and forwards it to the housing agency, which runs several foreclosure prevention programs.

Those suffering temporary hardships beyond their control are reviewed for the loan program, Hudson said. He attributes its success to a careful inspection of applicants' financial backgrounds, which are reviewed annually. Those who've racked up credit cards debts are not likely to gain approval, for instance. Those likely to land a job within a few months or years are.

"You must have a reasonable prospect of resuming full payments within 36 months and of paying the mortgage in full," Hudson said.

In 83% of cases, the agency wiped out borrowers' arrears. For the remaining 17% of clients, it pays their monthly mortgage obligation.

Loan payments are made directly to the servicers and a lien is placed on the property. The aid is repaid at a 5.25% interest rate over 10 years on average, though the borrower's financial circumstances are taken into account.

Such loan programs are not that easy to administer, however. Fannie Mae unveiled a similar program, HomeSaver Advance, in 2008 to help those suffering temporary financial hardships. It provided unsecured loans of up to $15,000 that borrowers could use to clear their arrears.

But the program was effectively discontinued within a year after redefault rates soared to nearly 70%. By August 2009, HomeSaver Advance accounted for only 3% of Fannie Mae's foreclosure prevention actions, down from 42% a year earlier.

Awilda Mercado is thankful that the emergency loan program in Pennsylvania continues to serve the state's residents. In 2008 she lost her factory position and her husband had an on-the-job accident that left him unable to work. To help her stay in her York, Penn., home, the agency took care of her arrears of $7,386 and paid four months of her mortgage.

Now that she's receiving unemployment and her husband is on disability, the Mercados have been able to resume their mortgage payments. They also are reimbursing the housing agency, often sending in more than the $25 minimum payment.

"They helped me not only save my home, but got me back on my feet," said Mercado, 52, who has three grown children.