Bonds News

Ohio mortgage bailout plan gets off to slow start

CINCINNATI (Reuters) - Struggling with one of the highest foreclosure rates in America, Ohio rolled out a rescue program for struggling home owners this week. Lenders have been lined up, a Web site developed and phone lines opened.

Trouble is, no one can quite figure out how to tell desperate homeowners about it -- and lenders say the ones who have heard about it may be too far gone to help.

“Even though it has been in the newspapers, it’s really one of those referral type of things that gets around by word of mouth,” said Patricia Kuether, a loan officer at Sibcy Cline Mortgage Services in Cincinnati.

“We haven’t experienced any phone calls asking about it yet.”

The state-sponsored program, run by the Ohio Housing Finance Agency, is designed to refinance borrowers facing rising payments and looming foreclosure into a 30-year fixed-rate loan with a 6.75 percent interest rate. That’s a huge discount for subprime borrowers who have seen rates rise to as much as 10 percent to 12 percent in recent months.

Housing experts estimate some 1.5 million U.S. homes will be foreclosed in 2007 as interest rates rise and borrowers fall behind on their payments.

While critics say government intervention in the subprime mortgage crisis will simply bail out lenders who preyed on home buyers during the U.S. housing boom, Ohio hopes the program will help about 1,000 home owners struggling to keep up with rising interest rates -- if only they can get the word out.

“When we opened our phone lines on Monday morning, we received a lot of phone calls,” said Rita Parise, director of programs at OHFA.

“But unfortunately we found that a lot of those people don’t have Internet access, so it’s a matter of walking them through the process to find lenders and nonprofit counselors in their community who can help.”

Ohio had the highest rate of foreclosure in 2006. Nearly 7,500 households -- or one out of every 640 -- registered a foreclosure filing in February, nearly 30 percent above the national average, according to foreclosure tracking service RealtyTrac.

The state expects to raise about $100 million through a bond sale later in the month to fund the program. While lenders say the program is a good first step, few are reporting a surge in inquiries.

“I just don’t know how to market it,” said Mike Veeneman, a loan officer at Progressive Mortgage in Cincinnati. “The percentage of business for us in subprime is a little under 5 percent, so it’s not like we have a huge database of clients we can go back to and say ‘let’s put you into this.’”

The problem is lenders participating in the Ohio program are rarely those that got borrowers into risky, adjustable or subprime loans to begin with. In most cases it will be up to the borrower to find a new lender to get the Ohio loan.

But Americans struggling with debt are often deluged by offers from predatory counselors or lenders, which makes spotting a good offer difficult.

Lenders said the most desperate of borrowers also may not qualify for the program. There are minimum credit requirements, and applicants must have enough income and only a certain amount of debt to be accepted. All will have to undergo four hours of face-to-face financial counseling.

“Unfortunately, I think some of the people who are going to be interested in it, they are so close to foreclosure it’s not going to work for them,” said Beverly Pineault, a loan officer at Humphries Mortgage in Cincinnati.

“We’ve had a couple of phone calls, maybe three phone calls about it,” she said. None look like they can yet qualify for the loan. “Once someone starts spiraling down financially, they get behind on their house payments, their credit scores drop, so it may be too late.”