One fund offers refinancing for troubled borrowers who have adjustable-rate loans if they meet certain criteria, including a cap on household income and limits on debt relative to income. These borrowers are offered cheaper, more predictable, 30-year fixed-rate mortgages.
The other fund is more aggressive, purchasing loans outright from lenders and then setting up affordable repayment plans with homeowners. In those cases, the agency works with lenders to reduce the mortgage’s principal, instead of just rescheduling payments or temporarily reducing the interest rate.
Pennsylvania has refinanced 40 loans and negotiated principal reductions for an additional 38 under the two programs since they were adopted in November, said Brian Hudson, executive director of the state's Housing Finance Agency. In most cases, lenders have agreed to cut the principal by 15 to 30 percent.
But, what if a state is already bleeding money? Take California, for example. Gov. Ahhnold got voters to agree to float a statewide bond issue two years ago, to push back dealing with debt the Leaden State was already accumulating at that time. I don’t see any way it could do something like the Pennsylvania model right now.
The story also notes that in a state like California or Florida, where many people under the foreclosure gun are hugely upside down on their mortgages, the Pennsylvania programs really aren’t applicable anyway.
I have another critique. Pennsylvania’s first fund sounds fine, and like it targets people who were the targets of predatory lending. BUT … the second fund sounds like it could also bail out people who bought houses as investments, or bought more house than they needed to keep up with the Joneses, etc. Sorry, but you shouldn’t be getting bailed out.
And, proposals for the federal government to back new state- and community-based bonding programs suffer from the same problem.
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