Published: January 5, 2010
Save Our Homes Coalition

Stemming the tide of foreclosures —
Loans to unemployed homeowners to preserve their homes

Unemployment is currently at historically high levels and it is expected to remain in the 10% range for much of 2010.  Foreclosure rates are at their highest level since records have been kept, with 14% of all mortgage loans delinquent or in foreclosure for the 3rd quarter of 2009.

Prime mortgages are now the largest segment of loans in foreclosure, with 55% of foreclosures targeting prime loans compared to 37% for subprime.  The federal Making Home Affordable program was designed to deal with the subprime mortgage crisis which was a major cause of the current recession.

It is now critical that a solution be found for the problems of unemployed homeowners who make up a large segment of those in foreclosure.

We propose a supplement to the existing Making Home Affordable or HAMP* program focusing on the unemployed.  We think that to reduce foreclosures for the jobless there is a need for a simple program that can get up to scale quickly in light of  15.7 million unemployed Americans and record foreclosure rates.  We thus propose the receipt of unemployment compensation as the eligibility test for a loan program to prevent foreclosures for unemployed homeowners.

This is how it would work.

• Unemployed homeowners, behind on their mortgage, would apply to their mortgage servicer in same way as all homeowners do for HAMP.  They would be encouraged to work with the many non-profit housing counseling agencies that exist throughout the country to prepare their application.
• Homeowners would check a box indicating that they are receiving unemployment compensation or have collected unemployment compensation from December 2007 (onset of recession) until the present.  They would have to provide proof of receipt of unemployment compensation and proof of household income.
• The servicer would then provide the homeowner  with a new mortgage payment set at 31% of the family income.  Payments at this level will continue for up to 24 or 36 months or the homeowner becomes reemployed and no longer needs them.    Homeowners would be tested for a loan modification but the Net Present Value* (NPV) Test, required under HAMP, will not prevent assistance.  The difference between the 31% payment and the payment that would be required for a neutral NPV loan modification would be the amount the government would subsidize the homeowner.
• The servicer would receive federal incentive payments as if this were a permanent HAMP modification. The servicer would get the homeowner to sign a lien for the loan or the modification to secure repayment by the homeowner to the government.   Servicers who do not carry out this program would be liable for penalties as designed by the Treasury.
• Homeowners have a continuing obligation to report a return to work or changes in income to the sevicer, who would then adjust payments accordingly.
• At end of 24 or 36 months (Pennsylvania HEMAP* standard) or when the homeowners income resumes and the assistance is no longer needed the mortgage servicer is entitled to payments equal to the difference between total monthly payments make by the homeowner (31% of income) and the amount of payments that would have been required for a modification that would have passed the NPV Test.  This amount would be a loan to the homeowner.
• Repayment to the Treasury would be payable by the homeowner through extending the monthly mortgage payments at the end of the 30 year mortgage or payable in full when the mortgage is refinanced or the home sold.

*Home Affordable Modification Program.

*Net Present Value test is one that determines if it is more profitable for a servicer to modify a delinquent loan than to proceed to foreclosure.  It is a standard used in the HAMP program.

*Homeowners Emergency Mortgage Assistance Program, a Pennsylvania  program offering loans for up to 36 months for homeowners facing foreclosure.

Prepared by the Save Our Homes Coalition, a Philadelphia based coalition comprised of housing advocates, Legal Services and other attorneys, housing counselors, city officials and homeowners. 

For more information contact the Save Our Homes Coalition, c/o Philadelphia Unemployment Project, 112 N. Broad St. 11th Fl., Philadelphia, PA 19102 (215) 557-0822,  www.Philaup.org