Foreclosure Prevention, Take 2: Try Cash

Among the usual promises to streamline government services and help the unemployed get jobs, New York City Mayor Michael Bloomberg's State of the City address earlier this week heralded something you don't usually hear in these kinds of speeches: in the mayor's words, "the most ambitious foreclosure prevention effort of any city in the nation."

A new mortgage assistance fund will help borrowers who are in trouble but whose limited financial resources disqualify them from the federal Home Affordable Modification Program. Cities from Boston to Jacksonville, Florida, provide financial assistance to help troubled homeowners patch holes in their finances and avoid foreclosure. But New York City is introducing something new: a grant that lasts for as long as a borrower continues to own the home, and must be repaid only when the property is sold.The first phase will get $10 million into the hands of about 1,000 homeowners. Half the funds will come from revenues collected by the Battery Park City Authority, home to the World Financial Center and an array of upscale rentals and condos; the other half from philanthropies.

The idea behind the effort, tentatively called the Mortgage Assistance Program, is to help out the many people who fall just short of the strict requirements for Treasury's modification programs. "We think it can be valuable for a subset of people who need a little bit of a hand up to make to make it the rest of the way to a modification," says Michael Hickey, director of the Center for New York City Neighborhoods, a nonprofit that helped develop the concept. Hickey says a recent report concluding that most borrowers who get loan mods owe more than when they started doesn't reflect what he sees among participants in the government HAMP program. More likely, he says, it reflects the handiwork of lenders who are doing loan mods with borrowers on their own. "About $15,000 to $25,000," says Hickey, "is all it takes to get them into a more sustainable mortgage."

It's an idea that could catch on. A New York Times report today on plans to overhaul HAMP reports that cash assistance to borrowers is one idea Treasury is considering.
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