More homeowners can get mortgages reduced

Posted: April 26, 2013 in California Real Estate News, National Real Estate News

An increasing number of underwater borrowers in California could qualify for mortgage reductions through a $2 billion program that helps homeowners who have fallen behind on their monthly loan payments.

Chase and Wells Fargo are the latest two banks that have agreed to slash mortgage balances as much as up $100,000 for certain clients through the state effort, Keep Your Home California.

The goal of reducing mortgage balances is that consumers end up paying more affordable monthly payments so they have a higher chance of keeping their homes.

Adding more mortgage servicers — companies that receive and manage home-loan payments — may mean more participation in an area of the state program that has seen slow traction.

In San Diego County, 72 borrowers have been granted principal reductions ever since the program started three years ago. That represents 4 percent of the total number of San Diegans helped by all aspects of Keep Your Home California, which also helps borrowers catch up on missed mortgage payments and provide moving help for those who end up losing their homes.

Banks have been hesitant to write down mortgage balances mainly because the decision lies with investors, those who actually who own the mortgages. The big hold-up was with Fannie Mae and Freddie Mac, the government-supported mortgage giants that own the majority of California’s home loans.

Their federal regulator, Edward DeMarco, opposed principal reductions because he did not want taxpayers to foot the bill.

“My obligation to those taxpayers, including those living in California, is to ensure that the assistance offered to borrowers facing difficulty in making their mortgage payments maximizes the opportunity to assist those borrowers at minimum cost to taxpayers,” said DeMarco last year.

Last summer Keep Your Home California officials no longer required loan servicers to match program money dollar-for-dollar for a principal reduction to happen. Since the program would pay for the whole reduction, that allowed Freddie and Fannie to give the green light to servicers to participate.

Banks just have to agree to either a term or rate cut, or both. Bank of America, another major loan servicer, also participates now.

Now 60-plus servicers take part in the principal-reduction program, up from 14 last spring.

“Having more servicers on board means more homeowners can receive assistance and we are already seeing encouraging results,” said Claudia Cappio, executive director of California Housing Finance Agency, which administers Keep Your Home California.

Keep Your Home California, funded by federal dollars, is a free program from start to finish.

To qualify for a principal reduction, applicants must owe than their homes are worth and have a financial hardship. Consumers can get up to $100,000 of their mortgage balance reduced.

So far, more than 1,600 borrowers in San Diego County have received some form of help through Keep Your Home California. The aid has totaled $21 million.

By: Lily Leung


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