CHICAGO – Help is on the way for some debt-plagued homeowners. It just may not be fast enough or broad enough to keep many from losing their residences.
The mortgage relief plan that President Bush is poised to sign as soon as Wednesday is designed to rescue about 400,000 homeowners by allowing them to get more affordable mortgages backed by the Federal Housing Administration.
But consumer advocates and some economists think the housing act doesn't go nearly far enough to save those whose homeownership is in peril.
While the foreclosure avoidance program is scheduled to start on Oct. 1, help may not arrive for months after that — and individual homeowners have no assurances they will be among those rescued.
"What happens to the people who are falling off the ledge right now? The answer is they're going to keep falling," said James Carr, chief operating officer for the National Community Reinvestment Coalition, a consumer group in Washington.
Skeptics point to the relatively small percentage of troubled homeowners who would be aided by the plan, which is part of the most significant housing legislation in decades. Nearly 2.8 million U.S. households are expected to either face foreclosure, turn over their homes to their lender or sell the properties for less than their mortgage's value by the end of next year, according to Moody's Economy.com.
Joseph LaVorgna, chief U.S. economist at Deutsche Bank, said the legislation will probably help the less distressed households among those flirting with foreclosure, while leaving others to fend for themselves.
"It's got its heart in the right place, but I don't think it's enough at this point," he said. "It will help some households, but it's not going to be the silver bullet to clean up the housing crisis."
Like many Americans, Andre McNair would love to be among the beneficiaries. But the St. Louis man isn't counting on it. He figures the mortgage relief plan is more about election-year publicity than immediate results.
"I'll have to see what this new program is, because a lot of new programs come out and it's like they're not doing anything," said McNair, a married father of three who's scrambling to make up three months of delinquent mortgage payments.
McNair knows he can't wait until October or later to catch up on three months of overdue payments, even if he qualifies for the relief program.
The 52-year-old real estate agent saw his income drop by $10,000 to $12,000 annually when the housing market slowed. That put him in trouble on paying off the mortgage he refinanced two years ago with an adjustable rate mortgage carrying a 9.5 percent interest rate.
He was paying $944 a month before he fell behind this spring — a total now bumped up to over $1,500 because of penalties and fees.
"I have four or five listings just sitting on the market," McNair said. "I've been making my payments on time. I was never late. Then all the sudden I slipped a little bit into the hole."
He took a part-time job at a factory making plastic bottlecaps, but quit because the 12-hour shifts left him little flexibility to deal with other needs.
While Congress debated the housing assistance bill this summer, McNair then turned for help to a local nonprofit group called Better Family Life Inc. Counselors there helped him negotiate a plan with his lender, Homecomings Financial, to catch up on his back payments.
He hopes to be out of delinquency by this winter. But the interest rate on his loan is set to increase in December, and he's worried he won't be able to refinance because of his past missed payments.
Based on what experts say, McNair is right to try to catch up on his payments without relying on Washington.
"Because of the problems faced in setting this up, it's highly likely that this program won't be fully operational until the early part of next year," Carr said.
The Department of Housing and Urban Development, which oversees the FHA, already is trying to fend off suggestions of inevitable delays.
HUD Secretary Steve Preston told reporters Tuesday that the government plans to have the program in place by its start date nine weeks from now, but criticized lawmakers for not including the requested funding to implement it.
To be eligible, homeowners must live in the home they are mortgaging, must have been paying at least 31 percent of their income toward their mortgage as of March 1, and must have their income verified by the bank.
But participation in the program is voluntary for lenders, and that looms as potentially a major obstacle to the program's success. Since the banks and financial firms that handle the mortgages will have to agree to let the borrower refinance, they might end up losing less if they let borrowers go into foreclosure.
"There are plenty of homeowners who are going to be able to qualify for this," said Mark Zandi, chief economist at Economy.com. "The problem is the mortgage servicers and (mortgage) owners — they have some significant impediments to taking advantage of this plan."
Amy Babcock of Horicon, Wis., fits the category of struggling homeowner, but is doubtful there will be any rescue lines tossed her way. She and her husband owe $15,000 more on their three-bedroom home than it is worth — a condition known as being "underwater" which afflicts many Americans.
They are managing to barely keep up with payments but worry about foreclosure when the rate on their $162,000, adjustable-rate mortgage jumps to 10 percent in December — especially with the building products firm where her husband works cutting back.
"It seems like when you hear good news on TV, it doesn't ever really help us," said the 32-year-old mother of three. "We will just have to hope for the best."