Foreclosure fix: will it work?

After the federal government took over lending giants Fannie Mae and Freddie Mac last year, the two enacted a sweeping plan to stave off foreclosures, including setting a moratorium on them until early 2009 and finding ways to cut payments.

Despite those efforts, many ended up back in front of James Frazier to be sold. And Frazier, the master commissioner of the Fayette Circuit Court, said he suspects that President Barack Obama's solution announced last week might have just the same results.

Many large banks have committed to a moratorium on foreclosures until the plan can be enacted, but "my instinct tells me we'll see most of these come back to us," Frazier said.

He, like many in Central Kentucky, applauds the president's effort but is skeptical that the plan will do any better than those that preceded it.

That notion hasn't been lost on homeowners in danger of being foreclosed upon. The day after Obama's plan was unveiled, Community Ventures Corp., which assists many in danger of losing their homes, had received few calls from people asking how the plan might help them.

Lamar Davis, director of foreclosure prevention at Community Ventures, said that might be because previous bailout programs have not provided much individual help. "The homeowners just haven't seen a lot of that trickle down to them," he said. "It may be a wait-and-see approach."

Obama's plan would offer incentives to lenders to reduce monthly mortgage payments to no more than 31 percent of a homeowner's after-tax income. Loan servicers would also receive an upfront $1,000 fee for every loan they modified as long as the borrower stayed current. The plan is expected to help as many as 9 million homeowners refinance and avoid foreclosure.

Jenny Wilbers of Georgetown is hopeful that others won't go through what she went through last year. But her experience keeps her skeptical.

Wilbers had her home foreclosed upon last August, more than a year after her monthly payment jumped from $425 to $675. She said the lender demanded upfront money to assist her and was difficult to reach and deal with throughout the process.

"Instead of trying to help me keep my home and working with me, it was that they had to have all this money upfront," said Wilbers, 26, who now rents a duplex.

The process culminated, she said, with the lender's decision to take all of her boxed-up items that were ready to be moved and tossing them in the dump.

"They took everything. I caught the last truckload ... and I did get two boxes of stuff out of the whole thing," she said last week.

She said much of what she had was lost. "My kids' clothes, pictures, antiques. I get choked up just thinking about it.

"I tried so hard over a year-and-a-half period to keep my home, and there were things going through Congress at the time. I was crossing my fingers hoping I would get some type of relief. I really hope a lot of this stuff works for these people, and the companies do what they need to do. It's too late for me, but I hope it works out for other people."

Specifics of the plan are still filtering out.

"We really don't know anything yet," said Diana Oliver, president of the Mortgage Bankers Association of the Bluegrass. "We hope it will stave off some foreclosures and stabilize property values."

The Kentucky Housing Corp., the state housing finance agency, hopes to have details by midweek on how it will affect the state, said communications director Charla Peter.

The plan did bring optimism last week to David Christiansen, executive director of the Central Kentucky Housing and Homeless Initiative, which works with non-profits, churches and the government to fight homelessness and housing insecurity.

He noted that "a lot of the criticism" of the Bush administration's federal bailout program "was that it went to the upper end of the food chain in terms of trying to stabilize the banking situation, but it didn't attack the foreclosure situation at the bottom, which is what caused a lot of this in the first place. ... It sounds to me like this is much more well thought out and targeted and will have at least a shot at improving things."

Davis of Community Ventures Corp. said a key to the plan's success will be the buy-in from lenders, who he hopes will be eager to help.

"We hope folks actually see this is something that will help the community out in every area," he said. "You've got to put some effort into it."

The key, according to Frazier, who sells the foreclosed homes, will be the ability to refinance. The extra time for homeowners is now there, he said, noting that the moratoriums by several companies on foreclosures reduced the number of homes to be auctioned off Monday from 44 initially to 17 late last week.

"It buys folks time to refinance, but what I'm fearful of seeing is that in six to eight months these same foreclosures will be back on my desk ... because they've been unable to successfully refinance or work out their issues," he said.

"If you can get them worked out and we don't see them again, then I think it's been a success, but if they end up coming back to us, I'm not sure what's been accomplished."