Government expands its mortgage-aid program

WASHINGTON -- The Obama administration expanded its $50 billion mortgage-aid program yesterday, announcing new measures that would help homeowners avoid a foreclosure if they don't qualify for other assistance.

The initiatives are intended to streamline the process of selling a home that is worth less than the mortgage, or transferring ownership of a home to the lender.

Both options still will ding the homeowner's credit score but less than a foreclosure.

Since the program, called Making Home Affordable, was launched in March, mortgage companies have made more than 55,000 offers to modify borrowers' loans.

"We're seeing a lot of progress in a very short period of time," Treasury Secretary Timothy Geithner said.

Officials estimate up to 4 million borrowers will get their loans modified, but housing experts such as Mark Zandi of Moody's Economy.com expect the number will be less than half of that.

And while the number of success stories is growing, it pales compared with the rate of new foreclosures, and many housing counselors across the country are complaining that the program has been slow getting started.

"The process in general is very slow," said Connie Chamberlin, president and chief executive officer of Housing Opportunities Made Equal of Virginia, a housing advocacy group in Richmond.

"While the ideas sound good, the administration of the ideas is very difficult," she said. "The servicers are overwhelmed, and they have many employees who are new" and may not know procedures.

Something that must happen when a loan is being considered for a modification is to stop foreclosure proceedings, she said.

HOME was working with a client this week who was approved for a loan modification, but the lender was moving toward foreclosure nonetheless.

"The house was almost foreclosed, but the process was stopped only because we were able to intervene," Chamberlin said.

The initiatives announced yesterday are aimed at ineligible homeowners. For borrowers who are unemployed or owe significantly more than their homes are worth, there generally are two options to avoid foreclosure.

The homeowner can sign the property title over to the lender in what is known as a deed in lieu of foreclosure. Or, with the lender's permission, the homeowner can sell the property for less than the value of the loan in what is known as a "short sale."

Mortgage companies would get up to $1,000 and borrowers would get up to $1,500 in relocation costs.

For months, real estate agents have complained that it's difficult to get lenders to agree to a short sale, and the process takes so long that many deals fall apart.

Staff writer Carol Hazard contributed to this report.