By Jason Jones
According to a report by RE-Fund California Campaign, approximately 1.2 million California homeowners have lost their homes to foreclosure since 2008. Another 800,000 are expected to receive foreclosure notices by 2012.
Despite California’s ongoing housing crisis, home-rescue programs at the state and federal levels have yet to make any significant impact. Enter the Keep Your Home California Program – another prospective failure.
The Keep Your Home California program uses federal funds reserved for the 2008 rescue of the financial system. The program is run by the California Housing Finance Agency, which was created as the state’s affordable housing bank to make low-interest loans for low- and moderate-income Californians.
State officials hope the program will help approximately 95,000 borrowers avoid foreclosure and provide moving assistance to 6,500 people who lose their homes. There are four different programs under “Keep Your Home California.” One offers unemployment mortgage assistance of up to $3,000 per month for six months. This may be valuable for qualifying homeowners if they apply quickly before falling far behind on payments. Another offers help reinstating a delinquent mortgage, providing benefits of up to $15,000 per household. If a homeowner is only one or two months in arrears, this might make a difference. One offers help transitioning after short sales and deed-in-lieu agreements but does not help after foreclosure. As many homeowners have discovered, many short sales become foreclosures solely because the bank fails to accept a short sale offer until after the potential buyer gives up and moves on. The final program offers the promise of principal reduction. This program is easily the most sensational and promising component of Keep Your Home California. Unfortunately, it is also so severely limited in breadth and benefit that it will ultimately be too little to have a meaningful impact.
While I have long thought that a broad-based principal reduction program may be one of the best solutions to the housing crisis, this particular program appears to be another waste of taxpayer dollars. For starters, it targets an extraordinarily narrow group of individuals. To qualify, you must: only own one home; live in your home; you must not have taken money out of the home; you must have family income under $89,900; you must have hardship (but not too much hardship because you still need to be able to afford your payments); your bank must be a participant, which primarily means Bank of America or GMAC; and you must have a loan-to-value worse than 115 percent. If you meet all of these requirements, plus a handful of others, then you may receive some nominal assistance.
The optimistic projections on the program’s official website show 25,000 homes expected to participate, getting roughly $30,000 per home, which the servicer might choose to match. Even a $60,000 principal reduction is only a reduction of less than $300 per month on a 30-year mortgage at 4 percent. So that didn’t really fix anything for the homeowner who just suffered whatever hardship was required to qualify for the program in the first place.
The latest RealtyTrac numbers indicate that more than 56,000 homes in California received foreclosure notices in July 2011 alone. This program doesn’t even amount to a drop in the bucket.
This program is ostensibly in place to keep homeowners in their homes and avoid foreclosures. It doesn’t affect nearly enough people and, for those few who could qualify, it doesn’t make enough of a difference. This is a waste of money and will only serve as a talking point during the re-election campaign for a handful of legislators.
Let’s hope legislators come up with a substantive solution to the housing crisis and create a program that will finally give California homeowners true relief.
Jones is founding partner of Avatar Legal, a business, bankruptcy, trademark and appellate law firm in San Diego.
Despite California’s ongoing housing crisis, home-rescue programs at the state and federal levels have yet to make any significant impact. Enter the Keep Your Home California Program – another prospective failure.
The Keep Your Home California program uses federal funds reserved for the 2008 rescue of the financial system. The program is run by the California Housing Finance Agency, which was created as the state’s affordable housing bank to make low-interest loans for low- and moderate-income Californians.
State officials hope the program will help approximately 95,000 borrowers avoid foreclosure and provide moving assistance to 6,500 people who lose their homes. There are four different programs under “Keep Your Home California.” One offers unemployment mortgage assistance of up to $3,000 per month for six months. This may be valuable for qualifying homeowners if they apply quickly before falling far behind on payments. Another offers help reinstating a delinquent mortgage, providing benefits of up to $15,000 per household. If a homeowner is only one or two months in arrears, this might make a difference. One offers help transitioning after short sales and deed-in-lieu agreements but does not help after foreclosure. As many homeowners have discovered, many short sales become foreclosures solely because the bank fails to accept a short sale offer until after the potential buyer gives up and moves on. The final program offers the promise of principal reduction. This program is easily the most sensational and promising component of Keep Your Home California. Unfortunately, it is also so severely limited in breadth and benefit that it will ultimately be too little to have a meaningful impact.
While I have long thought that a broad-based principal reduction program may be one of the best solutions to the housing crisis, this particular program appears to be another waste of taxpayer dollars. For starters, it targets an extraordinarily narrow group of individuals. To qualify, you must: only own one home; live in your home; you must not have taken money out of the home; you must have family income under $89,900; you must have hardship (but not too much hardship because you still need to be able to afford your payments); your bank must be a participant, which primarily means Bank of America or GMAC; and you must have a loan-to-value worse than 115 percent. If you meet all of these requirements, plus a handful of others, then you may receive some nominal assistance.
The optimistic projections on the program’s official website show 25,000 homes expected to participate, getting roughly $30,000 per home, which the servicer might choose to match. Even a $60,000 principal reduction is only a reduction of less than $300 per month on a 30-year mortgage at 4 percent. So that didn’t really fix anything for the homeowner who just suffered whatever hardship was required to qualify for the program in the first place.
The latest RealtyTrac numbers indicate that more than 56,000 homes in California received foreclosure notices in July 2011 alone. This program doesn’t even amount to a drop in the bucket.
This program is ostensibly in place to keep homeowners in their homes and avoid foreclosures. It doesn’t affect nearly enough people and, for those few who could qualify, it doesn’t make enough of a difference. This is a waste of money and will only serve as a talking point during the re-election campaign for a handful of legislators.
Let’s hope legislators come up with a substantive solution to the housing crisis and create a program that will finally give California homeowners true relief.
Jones is founding partner of Avatar Legal, a business, bankruptcy, trademark and appellate law firm in San Diego.
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