Michigan Foreclosure Aid Program Overwhelmed by Calls

Last week, with the help of a special $1.5 billion Obama administration fund for the states most devastated by property price declines and foreclosures, the state of Michigan launched its own program for unemployed borrowers who are having trouble paying their mortgages.

Unlike the federal Home Affordable Mortgage Program, Michigan is hoping to offer the one thing proven to help borrowers avoid foreclosure: cash payments, combined with principal reductions. Unemployed borrowers can get up to $750 month cash to help make mortgage payments, and up to $15,000 in principal reductions on mortgage debt.

There's just one problem: According to the Detroit Free Press, the nation's biggest lenders are not yet on board.
Indeed, a look at Michigan's list of participating mortgage servicing companies does not include a single major player in the business. So while the state mortgage help hotline got so many calls that it crashed last Monday, the program's launch day, most callers aren't going to be able to get the help the new program promises. The Free Press reported that the big lenders have the new program "under review."

Meanwhile Arizona, Florida, Nevada and California are launching their own "hardest hit" funds to provide cash aid and/or principal reductions to borrowers in dire straits. California's program won't be up and running until fall, but it already has an advantage over Michigan's: According to the California Housing Finance Agency, borrowers will be able to qualify regardless of whom their lender or servicer is. The aid depends on their exact situation and needs. Unemployed homeowners will be able to get $1,500 a month, up to $9,000 total, to stay current on their payments. Those who are already behind on their payments can get financial aid of up to $15,000 to get current. The state is prepared to pay for principal-balance reductions of up to $50,000, matched by lenders, to get out from negative equity. And if no other options work, the state will pay $5,000 to a household for relocation expenses.

Nevada is moving ahead with a combination to aid unemployed borrowers: principal reduction, help paying off second mortgages, and cash incentives for lenders to do short sales. Florida plans to make up to nine months of mortgage payments for unemployed borrowers, as long as their lenders are willing to do the same. And the Save My Home AZ program offers a menu of principal reduction of up to $50,000 (matched by the lender), mortgage payment aid and wipe-outs of second mortgages (so they don't stand in the way of primary-mortgage modifications).

Will all that spending be worth it? Most of the programs ask lenders to pay their share by matching the federal funds, which is a good place to start. And one idea behind the Hardest Hit Fund was to free each state to innovate its own solutions to the foreclosure crisis, which can be copied elsewhere if they prove successful.

But with Michigan stumbling badly out of the gate, we'll have to wonder for now how many homeowners this federal fund is really going to help. And if home prices dip again, it will take a whole lot more cash to keep troubled homeowners above water -- billions in taxpayer money that ultimately aids lenders more than anyone. As the feds and states slash their budgets in hard times, such massive spending may be more than anyone is ready to swallow.

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