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State Programs To Prevent Foreclosures Helping Only A Few

Mortgage Crisis: State Programs Reaching Only A Fraction Of Those In Need

By KENNETH R. GOSSELIN | The Hartford Courant

January 11, 2009

When Carl and Anjanee Wright fell behind in their mortgage payments a little more than a year ago, the Windsor couple saw the state's new foreclosure prevention programs as a beacon of hope.

They felt sure that they would qualify. After all, they both have steady jobs — she's a sixth-grade reading teacher and he's a health care worker for the state. They'd been referred to the programs by housing counselors who knew that the couple had started out with a no-money-down loan.

They had cut the fat out of their household budget and whittled down some debts.

But twice, they've been rejected for the state's mortgage relief programs, as recently as last month. The reasons: They make too much money, they've had too many late payments in the past and they are carrying too much household debt.

Now, the couple's future is in jeopardy. Their white, three-bedroom ranch — where they live with their two young sons — is in foreclosure.

"They keep saying, 'If you are in foreclosure, if you need help, call us,'" Anjanee Wright said. "I feel like the programs are there, but what they're saying is deceptive."

The Wrights, with yearly income of about $80,000, share a predicament with thousands of families in trouble in Connecticut — many of whom had reason to hope for help from the state. An examination of Connecticut's mortgage relief programs shows that only a small fraction of homeowners have qualified for aid that was meant to reach many more families.

Even as foreclosures continue by the hundreds, more than $100 million set aside by the state to help families keep their homes is going untapped. The state programs are so narrow and carry so many restrictions that getting approval is nearly impossible.

Since July 1, a program to help homeowners make payments on their mortgages has helped one borrower so far, with just five approvals pending. That, despite 382 applications for the program — the Emergency Mortgage Assistance Program, or EMAP.

The centerpiece program, CTFAMLIES, has fared better, with 65 loan refinancings closed, totaling $13.5 million, among 309 applications. Another seven refinancings are approved, and awaiting a closing date.

In yet another program — the Homeowner Equity Recovery Program, or HERO — the state planned to buy mortgages from lenders, who would take a loss, and negotiate to set more affordable interest rates. HERO has yet to help a single homeowner, and just one loan is expected to close later this month, state records show.

"Everyone agrees there needs to be some changes," said state Rep. Ryan Barry, co-chairman of the legislature's banks committee and an architect of the mortgage relief programs passed in the last session of the General Assembly. "We have to make them more flexible to examine the circumstances the homeowners are in, and not make it strictly financial."

The halting progress of the state programs, at a time when they are most needed as the economy deteriorates, has happened despite a revamp of CTFAMLIES last winter, when just 25 families seeking help were approved in the first eight weeks of the highly publicized program.

Connecticut's difficulty in delivering aid also mirrors federal mortgage relief efforts, which have floundered.

'Here To Help'

When they were launched by the governor and state lawmakers in the past year, the programs were trumpeted as much-needed relief for homeowners who found their mortgage payments rising faster than their incomes could support — some saddled by unforeseen illnesses or other life-changing circumstances.

"We are here to help, and with this legislation, we will," Gov. M. Jodi Rell proclaimed as she signed the relief programs into law.

But the reality has been far more sobering as the programs, bound by strict underwriting guidelines to protect public money, lock out homeowners. In the case of EMAP, for example, all eligibility requirements must be met — among them that homeowners have lost at least one-quarter of their income and that they have a good credit history other than with their mortgage payments.

The income-loss requirement is especially onerous, Barry said, because many families face a crisis without large hits to their pay.

The Connecticut Housing Finance Authority, which administers the relief programs, insists that it wants to make loans. But, said Carol DeRosa, who oversees the lending programs at CHFA, "Where we can't justify making loans is to borrowers who don't have the financial means to afford the mortgage situation that they are in."

Meanwhile, in Connecticut, the number of residential mortgages in foreclosure or seriously delinquent keeps rising. As of Sept. 30, about 3.5 percent of all residential loans, or 18,600 home mortgages, were in foreclosure or 90 days past due. That compares with 3.1 percent, or 16,560, just three months earlier.

DeRosa said that the slow start of the programs does not fully represent the state's efforts at tackling the foreclosure crisis. In the state's foreclosure mediation program, which began on July 1, 954 cases have been completed. More than half resulted in an agreement with the lenders that allowed the borrowers to stay in their houses, according to the state's judicial branch.

The state has held more than a dozen housing fairs to publicize the aid programs, but it has not seen larger numbers of applicants because many are working directly with their lenders, or are refinancing through the Federal Housing Administration. Many more are steered away from the programs by counseling agencies because they won't qualify.

Housing advocates are frustrated by the lack of impact in the direct-aid programs, which they say adds to distressed homeowners' anguish.

"It does give them false hope," said Erin Kemple, chief executive of the Connecticut Fair Housing Coalition. "The underwriting guidelines don't have to be as strict because these are people who got in trouble with bad loans, not because they refused to pay."

No Money Down

What happened to the Wrights is typical of those who ran into trouble in the heady days when mortgage lenders were handing out money and asking few questions.

In 2003, the Wrights paid $143,000 for their house on White Rock Drive. They'd been married for three years with a toddler, Choice, and were living with Anjanee's mother. They had tried to save for a house, but unable to make a large down payment, they opted for an adjustable-rate loan at a high interest rate of 8.7 percent — with no money down.

Their troubles began soon afterward when they realized that their $1,100 monthly payment didn't include an escrow for property taxes — about $3,500 a year — and homeowners' insurance. They kept paying their mortgage but fell behind in paying their taxes.

Anjanee Wright admits that the couple didn't know how complex it would be managing a household budget plus all the expenses that come with raising children. There also were student loans and a car loan.

"You don't realize how overwhelming it all is," she said. "We were so excited about getting our house."

Despite the financial struggle, the couple took pride in their home, getting together with a friend to fix up the basement to give the couple extra space for their growing family.

But what set them on a collision course for foreclosure was Anjanee's pregnancy with her second son, Holden. Midway through her pregnancy in late 2006, her doctor placed her on bed rest, and when she ran out of paid sick time as a teacher in Hartford, the couple's income dwindled.

By then, the couple had refinanced their mortgage to pay $7,000 in overdue property taxes, tapping into equity in a still-rising housing market and taking a $165,000 mortgage. But with a now-shaky credit history, the 2-year adjustable mortgage came at a cost — 9.6 percent.

With Anjanee Wright out of work for five months, the couple quickly fell behind by the end of 2007 in payments — just about the time that the governor announced CTFAMLIES.

"We called as soon as we heard about it," Anjanee Wright said.

Hoping And Praying

The Wrights didn't qualify for CTFAMLIES, told by lenders in the program that their credit score was too low — and that they had too many late payments.

"They said, 'We could help you if you were in danger of being late, but not because you are late,'" Carl Wright said. "Everything is about the past, not what you're doing now."

Undeterred, the couple went to housing fairs sponsored by the state, sought out the help of housing counselors and tried for months to work out new loan terms with their lender throughout last year. They wanted to send in partial payments but their lender wouldn't accept them.

Relatives now help out with child care expenses, saving the couple more than $500 a month. They are down to just one credit card and a car loan. They've gotten a deferral on paying student loans.

Anjanee Wright taught summer school last year to add to the couple's income.

But nothing stopped foreclosure papers from landing on their doorstep Nov. 30.

Now, they are in the state mediation program. If they win a modification in terms from their bank, state mediators have told them, they might have another shot at EMAP. They figure that they owe about $20,000 in back payments and fees.

"We just keep hoping and praying until they kick us out of the house," Anjanee Wright said.

If they can hang on long enough, they might find more welcoming state mortgage assistance programs. CHFA is likely to recommend changes in the programs, which would have to be approved by the legislature.

"We're doing an internal analysis," said the CHFA's DeRosa. "We've certainly learned from our experience."