$1 Billion Pledged For Refinancing Subprime Mortages, But It's Not Nearly Enough

The Neighborhood Assistance Corporation of America announced that they have set aside $1billion for the refinancing of subprime mortgages, but it’s not nearly enough. From the Washington Post (emphasis ours):

NACA requires that people who ask for its help attend intensive housing counseling workshops. It also assesses the person’s ability to own and maintain a home. It then helps the person obtain a mortgage with one of its partner lending institutions, the biggest ones being CitiGroup and Bank of America.

In 2003, Citigroup made available $3 billion in mortgage loans to NACA through 2013. Bank of America, which has worked with NACA since 1995, committed at least $6 billion through 2015.

The group traditionally found the money was best used to finance new home loans for low- and moderate-income buyers.But with the mortgage crisis unfolding, it decided that $1 billion should be used to refinance the loans of people preyed upon by abusive lenders. The group expects to refinance about 7,000 mortgages — a small number, given estimates that more than 1 million homeowners nationwide could be at risk of foreclosure.

If the Washington Post’s numbers are correct, people facing foreclosure in the US will need an additional $142 billion in financing. —MEGHANN MARCO

$1 Billion Pledged to Help Fend Off Foreclosures
[Washington Post]
(Photo: mrbill)

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  1. bobbycreekwater says:

    This may not be completely related to the story, but I chose to purchase my home through the NACA program and its an amazing and great program to say the least. I’m glad to see NACA get a little more pub.

  2. cindel says:

    I was at their DC office yesterday for my mortgage counseling and the press from Washington Post were there.

    It’s a good program however you have to attend workshops and volunteer; “pay it forward” in order to participate.

  3. rusgreim says:

    The money these lenders are allocating to NACA doesn’t come from the sky; it’s money that other borrowers will have to pay for through higher interest rates and greater fees in the future.

    Why is it the job of these lenders, other organizations, or possibly at some point in the future, the government, to fix these ARM’s and interest-only loans that irresponsible borrowers took out?

    People keep placing blame with “predatory” or “abusive” mortgage brokers, but I rarely hear any responsibility assigned to the borrowers who apparently did NO research into their own ability to borrow and what debt load they could incur. There are thousands of websites on the internet that will tell you how much you can borrow, etc.

    Apparently, you and I, as consumers of loans will be paying for the mistakes of others for years to come.

  4. joeblevins says:

    Shouldn’t the ones that are defaulting on thier mortages try to get out of the house. SELL it now if there is any equity at all. If none, then go thru with this. Not sure refinancing helps anyone if these poor people couldn’t afford the house in the first place. They are stretched. Maybe the best way to spend the money is help people to just get out of thier houses and back into Renting.

  5. zero_o says:

    A good majority of these people who are facing foreclosures were not “prey” for shady lenders (don’t get me wrong many people WERE taken advantage of) a lot of people thought they could make a quick buck by banking on property appreciation in a boom market and sell before the loan balance came due. It is going to be hard to distinguish between the “investor” who was trying to make a quick buck, and the poor souls who were convinced by loan brokers that taking a 300k mortgage out when you only make 25k a year is a good idea.

  6. SirKeats says:

    I have no sympathy for the folks who are in trouble here… well, I say that in a general way; I’m sure there’s exceptions were people truly did get screwed somehow. In general though, these people who borrowed way more than they could afford and are now unable to make their payments don’t deserve to own a home in the first place. A couple years ago when my wife an I bought our home, were pre-approved for an ungodly amount of money by our lender based on various interest only loans and such. I literally laughed at the loan agent and, instead, borrowed what I could ACTUALLY AFFORD and didn’t get any funny interest-only term loans.

    The problem has more to do with people’s greed, buying more home than they could have ever possibly afforded, than with lending practices (though I’m not saying scumbag lenders should be let off the hook either).

    jmho of course as a recent home buyer.

  7. Ass_Cobra says:

    Honestly, anyone who has ever watched “Flip this House” knows that abuse came from Borrowers just as readily as lenders. In almost every episode the flipper is under the gun because they don’t have enough cash to pay the mortgage for more than a few months. I have zero sympathy for these fools and hope they get what they deserve. I am certain that there are plenty of people that were misled by mortgage brokers and for them I feel sorry and I hope that they get some help. However for a site that wants consumers to be informed and take charge of their purchasing decisions people that did very little due dilligence on what will arguably be the largest purchase of their life are really getting a free pass.

    Simple rule, a real sustainable mortgage payment will cost your roughly $6 per thousand borrowed per month in principal and interest. This obviously varies with interest rates but for the time being it’s a decent rule of thumb. Maybe if prospective borrowers knew this they’d ask the question about how they can get a mortgage nearly twice the size at 65% of the payment.

    I agree that this pledge is little more than a PR stunt. In fact out of a pool of borrowers of 1MM finding 7K or so that have had trouble in the past but will pay in the future is not such a hard trick. In fact mining a lot of people who were legitimately misled could yield some great borrowers who will be prudent in the future as they have the painful experience of nearly losing their home seared into their memory.

  8. sblinder says:

    Is the $142 billion estimated cost to bail out the one million at-risk mortgages meant to buy all of them out, or to help them get by?

    I work that out to be $142,000 a head, enough to buy a modest home in many markets (at least, in the Midwest or South).

  9. John Stracke says:

    @rusgreim:

    Apparently, you and I, as consumers of loans will be paying for the mistakes of others for years to come.

    I agree. Unfortunately, we may be paying for their mistakes one way or another, no matter what. First: foreclosures cost banks money, too (that’s probably why they fund NACA); so, either way, the cost of a failed loan will be passed on to future customers.

    Second: Foreclosures bring down the value of neighboring homes, both because foreclosing banks sell off the homes more cheaply (my parents have a condo in Brooklyn for which they paid $40,000 in 1996), and because empty homes make a neighborhood look bad. So, would you rather pay to keep people in their homes, or pay in the form of a lower price when you eventually sell yours?

  10. zero_o says:

    I just purchased a condo, for zero dollars down, but I checked and rechecked how much I could afford per month and then bought something for less then the amount I could afford. I did get a 7/1 ARM as opposed to a 30 year fixed to save a few points but at least it is a traditional mortgage, every month I pay principal plus interest. Ignorance of financing is still no excuse to get caught in something you can’t afford. Just like ignorance of the law is no excuse for breaking it.

  11. ManWithLostPassword says:

    I have the biggest beef against this government swooping in to rescue the banks as we all know, government could not care less about the people who were being displaced because they signed under a mortgage they have no chance to afford.

    I make above 100K per year in Los Angeles and have a mortgage less than half a million dollars and that keeps me awake some nights. I am only able to pay an interest only loan with this income of mine on this relatively small mortgage. I am wondering how a person with no formal education, heck, with no legal papers to be in the US, can afford the same house, smae mortgage across the street from me. So, the judgment day comes and he is near foreclosure. What happens ? Uncle Sam comes in to help “poor people who were deceived at the time of mortgage signing”. With what ? Nothing else then the tax he took from me at proverbial gunpoint. Woo-hoo ! poor Mexican family’s house is saved.

    Fast forward 4-5 years. Let’s hypothetically assume, my employer got in hard times and I got laid off. What are my chances of paying this mortgage with the income of a supermarket clerk or some other menial job which pays barely the minimum wage or slightly above ? None ! Will the taxes I paid save me in the form of financial aid ? I don’t think so. As a matter of fact I know so. When I got laid of in 2001, first time in my life, if I did not have the savings in the bank to last me 7 months of unemployment (4 of which I could not even see my unemployment checks) I would be foreclosed upon.
    I suggest the bed-wetting liberal senators should take their hands out of the free market economy. If a person was not able to afford a house at the first place, they should not have signed those papers. If they did, they need to take the consequences of their actions on the chin.
    I am sick and tired of this wealth re-distribution.

  12. mac-phisto says:

    wow. four out of six consumerists say “it’s the buyer, not the lender”. for me, it’s hard to imagine that millions of homeowners got caught in a trap b/c they were stupid. considering a closing consists of the signing & reviewing of a 6-inch high stack of papers over the course of a couple hours, i’m gonna side with the consumer here.

    for the record: ARMs & balloons are commonly not predatory loans & they are valid methods for purchasing a home – they have been for more than 3 decades. predatory loans consist of legally questionable terms, they grant rights to lenders that normally don’t exist, they are originated by crafty salespeople that use unscrupulous methods to entice borrowers, they use methods to increase rates & fees that are questionable, etc.

    the worst cases i have heard of involve lenders that have no interest in actually booking a loan. they run short-term brokerage houses that offer low rates (in exchange for high closing costs), they pocket payments, sell the loan paper & go out of business. within a year, the borrowers finds themselves in foreclosure despite making payments b/c the payments were never applied to the loan. in reality, this isn’t even predatory lending – it’s outright fraud.

    & one final note: a large number of these homeowners are not first-time homebuyers. many found themselves in a financial trap due to unforeseen expenses – medical bills, loss of income, legal expenses – tried to refinance & got a raw deal. predatory lenders will use urgency to trap borrowers despite their financial savviness.

  13. medalian1 says:

    This is insane, I don’t feel sorry for any of these people facing foreclosure.

  14. TheNomad says:

    I have no sympathy for the people who signed those outrageous 1% loans without consulting a financial advisor. Of course, it was the best thing that ever happened to them. 1500 dollars of monthly mortgage payments for a house that they had to pay $3000/mo. if they rented it. And if it was a 1 year introductory rate, they got 50% off from their yearly rent, roughly speaking.

    Now, why is it my responsibility, to pay their mortgages out of my hard earned money, taken from me as tax, while state of CA is putting special bond measures in the ballot, every election time for things like road improvements. Aren’t these the things that should have been taken care of first from my paid taxes but not rescuing the idiots of the US ?

    Holy friggen christ. Enough is enough people.

  15. bobbycreekwater says:

    “irresponsible borrowers”

    NACA is not a program for “irresponsible borrowers.” NACA gives ordinary people who made a few mistakes in the past the opportunity to obtain the American dream of owning a home, and/or foreclosure b/c of an ARM. We all know the drill, you get into an ARM make payments, payments increase, you get behind and next thing you know you are in foreclosure. For those individuals who made mistakes and their credit is not up to par, NACA allows them to finance at excellent rates but FIRST the borrower must show NACA that they are able to afford the home. The borrower is required to save X amount of dollars each month and maintain a clean credit history for X amount of time. When approved by NACA the borrower has proven that they will not live check to check but actually live comfortable each month. For some it can take at least a year before they are approved by NACA for the loan. Borrowers must show not only the ability to make payments but also the dedication to save. It gives “irresponsible borrowers” another chance and teaches them how to manage their money.

    I personally have an outstanding credit history and I chose NACA for many reasons, the number one reason being that I did not want to put down a large down payment on my home, instead I utilized those funds to pay down my interest rate to 3% fixed @ 30yrs.

  16. Ass_Cobra says:

    “for me, it’s hard to imagine that millions of homeowners got caught in a trap b/c they were stupid. considering a closing consists of the signing & reviewing of a 6-inch high stack of papers over the course of a couple hours, i’m gonna side with the consumer here.”

    I would say that it’s not stupidity but carelessness. If you can’t be bothered to read your docs, then don’t expect me to feel sorry for you. So what if your lender tells you you have X minutes or Y hours to sign. It is the biggest damn purchase of your life. If he can’t wait till you’ve done your proper review don’t give him the business. Just because people make bad decisions due to some perceived time pressure doesn’t mean it’s not their responsibility to make the right decision.

    For example, Mac-Phisto, mortages originated under the scenario you’ve described (re-fi’s, presumably with a different lender than the original) are subject to The Truth in Lending Act which provides for a three day right of recission period. http://www.bankrate.com/brm/news/loan/20040212a1.asp

    Unfortunately new home purchases, and re-fi’s with the same lender are not subject to TILA so people are somewhat hosed there, but a lot of people that you believed were victims of pressure really had an outlet.

  17. Nygdan says:

    “hard to imagine that millions of homeowners got caught in a trap b/c they were stupid”

    Why? Surely there are millions of stupid people in the US. There’s 300 million people total. Heck, by definition most of them are of ‘average’ intelligence, with an ‘average’ education, etc. So there being a few million that are stupid enough to take on a ‘super-duper magically low payment’ loan, shouldn’t be surprising.

    Besides, this isn’t so much about stupidity as it is about risk. These are people that took on loans that gave a great deal upfront, and that had much larger payments years later. They figured that they’d either sell the house before then, or have better jobs and be able to afford the higher payments. That’s a risky move.

    I just hope that the government doesn’t on its own start directly giving money to people to make up for them having made a risky, but failed, investment. If the banks want to give out more loans, then that’s fair enough.

  18. mac-phisto says:

    let me reiterate, i think some people missed my statement the first time. predatory lending is not ppl that took out a low-percentage ARM so they could buy a $600,000 home on a $30,000/yr salary. it’s people that fell victim to lending practices that are illegal, or border-line illegal in their practice – falsifying documents, adjusting rates, payments &/or payment terms w/o properly disclosing them, etc.

    @RowdyRoddyPiper: you are assuming that a predatory lender plays by the rules. predatory lenders may not inform borrowers of their legal rights under the law, despite their legal obligation to do so. they may also include forms that persuade a borrower that they are waiving certain rights (such as a right of rescission) when they are legally not allowed to. there are cases where loan documents at closing do not contain the same information as previous copies the borrower may have reviewed. that was the point of referring to the mound of paperwork – a human is not capable of reading 300 pages in 2 hours.

    referrals play a big part in a predatory scheme (broker chooses lawyer – “this will save money at closing” – who represents borrower & bank alike). you may feel confident in your ability to translate legalese, but if it wasn’t for my lawyer, i would still be on page 4. now imagine a lawyer pretending to represent your interests that is literally lying to your face in his translation of the contract. are you so sure you could tell the difference?

    unfortunately, even if elements of a loan document are unenforceable under the law, or certain disclosures were not made as required by law, or your legal representative hosed you, the document itself will remain in force due to a severability clause that exists in every mortgage document.

    i can see i am taking an unpopular stance & it’s rather tiring, so i digress.

  19. Jiminy Christmas says:

    I’ll repeat this s-l-o-w-l-y for those still unable to understand this story: NACA is a private non-profit. That means that when they refinance sub-prime borrowers, the government and your taxes have nothing to do with it.

    Why do you think Citigroup, et al. fund this non-profit anyway? Probably because subsidized refinancing costs them less than trying to recoup their investment through a foreclosure. It’s not charity, more like enlightened self-interest.

    If you want to really get worked up about housing, the government, and taxes: Why does the mortgage interest deduction extend to second homes? Because without a government subsidy those with large disposable incomes would have nowhere to spend the weekend during the summer? Ask yourself if that is a truly worthy use of your taxes.

  20. TheNomad says:

    @jrford8

    even though, it is not said directly in this consumerist article, today, all So.Cal. papers’ business sections are brimming with “great” news about senate mobilizing money, no less than a billion dollars to help subsidize the subprime mortgage related foreclosures. When senate goes into any deal, I know that the money gets to be spent will be my tax dollars, i.e., wealth redistribution.

    Since you are the staunch backer of NACA, let me ask you this, in their eligibilty check page, they say, you can not have a property to your name to benefit from their loans. If you do not have anything to your name, how come you could be affected from this subprime lending fiasco ?

    Also, I have a sneaking suspicion that NACA, does not only get funded by charitable donations from citi and likes but also gets some substantial contribution from the government. Even if we say that it is totally and privately funded, lokk at the picture : city is funding this organization, which in turn pays everything back to citi. How nice of a loophole for citi not to pay taxes, I have no way of avoiding.

    This case of yours is like a strainer. Does not hold water.

  21. Sonnymooks says:

    I would really really love to have the hard numbers on how many of these people were flippers who just got caught with their pants down. I have no doubt that they are NOT the majority. However, since I’ve met a couple of them in the last few days, it has got me curious.

  22. CumaeanSibyl says:

    @Sonnymooks: I’d love to know that as well. There are a bunch of TV shows out there now about house-flipping or maximizing your sales profit, and I wonder how many people saw those and thought “hey, I know how to paint, I’ll flip a house!” without understanding what they were getting into (or paying attention when the TV people fell flat on their faces).

    On the other hand, I doubt most of the unsuccessful ones are actually facing foreclosure. In order to buy a second property and pay for renovations, you either have to have a chunk of cash on hand or fantastic credit, and either condition would probably sustain you long enough to get out from under the mortgage without taking too much of a loss. Even in a buyer’s market, it’s unlikely that you’d have to sell a renovated property for less than your purchase price… I’d be more worried about the credit-card bills from Lowe’s.

  23. TheNomad says:

    The house flippers who got caught in the scope of this subprime lending fiasco is not any larger than the count of your fingers I am sure. And, I for one, do not have any sympathy towards greedy people.

    The overwhelming majority of people affected by this is the ignorant, low income, go-go real estate minded people. They have jumped into this, what I call a big SCAM, signing papers which disclosed the scam to them one way or another, without reading them. Now the house of cards is collapsing and the great politicians, are mobilizing the money they drained out of *MY* pocket to save the stupid.

    Ayn Rand should have lived today to write about those and become the absolute best seller. “I want it, so I am entitled to it” mentality is what is going to make American dream go to hell in a handbasket.

  24. mac-phisto says:

    on flippers: check this guy out:

    http://www.iamfacingforeclosure.com/

    @TheNomad: it’s not only low-income people. this is affecting people in all brackets. & no, sometimes this was not disclosed according to the law. do a google search for “predatory lending foreclosure” (no quotes) & you’ll find loads of stories about people of all ages & incomes getting scammed by brokers & mortgage companies in ways that violate the law.

    the worst stories i found center around US bank charging borrowers for attorney fees & foreclosure costs ($3000-$5000) BEFORE the home was in foreclosure & the costs were even incurred. one such story was about a retired couple on a fixed income with a mortgage of only $260/month. US bank misapplied their payments & then put them into foreclosure. when they discovered the error, they refused to reinstate the loan until the foreclosure costs were paid (even though it was their error & the loan never actually entered foreclosure).

    interestingly enough, closing fees are the most common form of predatory lending that i encountered – & chances are all of us with a mortgage have paid them. for example, “hostage fees” are illegal, yet almost all banks charge them.

  25. TheNomad says:

    yes I know it is affecting people of all income brackets but people with decent enough income, does not face foreclosures right now. I know I am marginally one of these people. My mortgage could not be called “predatory lending” but, since I was buying a new house and had a limited amount of time to complete my loan application and get it approved, I did not have any choice but go with the builder’s lending arm, KHovnanian mortgage inc. (or what the hell ever their name is). Because I had to qualify with them first in order to be able to purchase the house. And by the time the house gets built, you do not have sufficient time or desire to deal with another one or more lenders. So, yes, I am considered to be in the top 1% earners in this country, but with Los Angeles area prices, I was only able to qualify for a interest only loan. I am hoping, my job will keep me on board and I will keep making my payments and be able to sell this house to make some profit in the long run, like 5-6 years without being a burden on the taxpayers’ shoulders.

    But, if you are the person who bought a house in my cul-de-sac, from the same builder, with a mortgage, interest rate of which is at least few percentage points above mine and I know the guy does not have a steady job. Heck as far as I can tell, he may not be in this country legally. But he still has a house. He rents rooms to people like himself, like crazy. His driveway is like a car junkyard most of the time. But I know for a fact, whenever his introductory period for his 1% or 2% loan is over, that house will be foreclosed and I will hate to see it because of the devaluation of my home by being in the same neighborhood. But still, I do not want my tax money to be used to save this person from his stupid decision. I do not have any compassion for people who do stupid things and expect the responsible people like me to save them at any cost. And our (our here does not include me as I will never vote for any democratic party clown) liberal senate leaders are holding the pan for them. That is what I am against, in the grand scheme of things.

  26. Nygdan says:

    The million at risk homes aren’t all people who were defrauded by con-artists. That’s only a small percentage of people. The bulk of these houses are people that took on loans that they couldn’t afford. They could make the early payments, but once that intro period was over,they got whacked with high payments that they couldn’t make, went late, saw their rates skyrocket, etc. We can all feel sorry for them, and sure, its a good thing that there are organizations that want to focus their funding on them, but lets just hope that it doesn’t come down to government bail-outs for them. It could very easily go that way and that wouldn’t be fair to the people that avoided those sub-prime loans and took on larger payments because of it.

  27. is “mortage” an alternate spelling for “mortgage”? or simply an incorrect alternate spelling?

    Because it’s spelled “mortage” in the post title (as well as in a couple commenters’ posts).

  28. mac-phisto says:

    @Nygdan: what is your definition of small percentage? perhaps 1% of all homeowners? perhaps 1/2%?

    http://www.realtytrac.com estimates 1 foreclosure filing for every 92 homes in the u.s. in 2006. that works out to roughly 1%. even if you define small percentage as 1/4% of all homes, that accounts for 20-25% of last year’s foreclosures.

    here’s a link to foreclosure data for 2006: check out the graph to see foreclosures by state:

    http://money.cnn.com/2007/01/16/real_estate/December_forec

  29. TheNomad says:

    @mac-phisto

    What Nygdan said, small percentage of *these foreclosures* are due to fraud by the lenders. Even then, those people have to take up their beef with the fraudster lenders before crying uncle. Government should only intervene in the criminal punishment phase of the defrauding cases.

    In all your postings, you sounded like, you like the idea of government spending tax dollars to bail out these people because you pity them for one reason or another. Unfortunately, this is the very idea that makes my feathers ruffle. I DO NOT WANT MY TAX DOLLARS TO BE SPENT FOR BAILING OUT PEOPLE WITH POOR FINANCIAL JUDGMENT ! No matter why, how and what percentage of the people got subjected to this. After all, if you are signing a paper without reading it in detail, especially something that puts you under the biggest debt of your life, it is your problem, not mine. I don’t know if I can be any clearer.

  30. mac-phisto says:

    @TheNomad: as clear as an ostrich with its head in the sand.

    your assumptions are baseless. i don’t recall stating my opinion on government intervention once. so i will state it here:

    i do not advocate government bailouts of any industry. it’s obvious that the government couldn’t sharpen a pencil correctly, i’d rather not trust them to spend my money. if i had a choice, i’d burn 30% of my income rather than hand it over to uncle sam…it’s better spent in my fireplace.

    but this affects more ppl than you think & it affects you & me to (i’m assuming that you own a home here). not so sure? we’ll talk when your neighbors’ homes start hitting the auction block.

    what do i advocate? industry programs to isolate & rectify problem loans. banking regulators that actually do their job (which is making sure that loans meet legal guidelines). a purge headed by the major players in the home industry to expose & weed out fraudulent lenders.

    i think the industry should fix itself. absent of that, i wouldn’t mind seeing some eliot ness-types assaulting brokerage houses with tommy guns & plugging a few in some of these unscrupulous bankers. but that’s the extent of the government intervention i’d like to see.

  31. Shrike70 says:

    @TheNomad: As a non-flipper who wants to keep his home, I have to agree with Mac-Phisto on principle; when strident libertarians say “I am not going to contribute one solitary tax dollar to bailing out stupid people” this exposes a tremendous degree of ignorance of macroeconomics, the history of abusive business tendencies, and a draconian, merciless attitude that may preclude you from raising well-adjusted offspring.

    At some point in our life, we all either have been or will be, some day, one of the many “stupid people” who need some kind of grace at the hands of the government, law enforcement or financial service providers, be it through sound business practice, good will, or because it serves a purpose that extends beyond your small, high-walled, tidy back yard.

    E.g., Social Security is a massive, underfunded bailout program for tens of millions of people who, according to your reasoning, behaved stupidly. Let’s stop funding it and see what happens.

    Hurricanes wipe out Florida towns almost every year. Let’s quarantine the state. Same with New Orleans. Those people were all stupid, from the governor on down, because they knew what they were getting into.

    A well-managed, mega-billion dollar bailout for earnest homeowners who pass a legitimacy measure — people who, in good faith, “stupidly” accepted what their mortgage lenders were telling them, and probably skipped the fine print IN THE ABSENCE OF stringent regulation on disclosures — actually could serve the greater need of the economy of the US in that it may stabilize everything else.

    I disagree with Mac-Phisto, in that the industry will NOT fix itself. As long as companies define growth and success by gross transaction volume balanced with some retroactive “risk” calculation, not by projected foreclosure rates, they will do whatever they can get away with.

    You’ll note that governments around the world have had to step in to regulate – with the threat of prison time – how companies report their financial results; how all health care providers control access to extremely private records; how manufacturers trace the raw materials back to their source. Why not an industry so fundamental to national financial health as home ownership? Government is absolutely obligated to step in when an industry sucks at policing itself. Can you say Standard Oil?