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Responsible Homeowners Drown in Debt With No Offer of Help

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By Paul Owers

RISMEDIA, July 2, 2010—(MCT)—Scott Katzer owes about $200,000 more than his Fort Lauderdale home is worth. Unable to sell anytime soon, he wants to reduce his monthly mortgage payment by refinancing to a lower interest rate. Katzer doesn’t qualify under a government refinancing program because the value of his home is so much lower than what he owes. Private lenders turn him down for the same reason and he’s ineligible for assistance from a state-run program because he has a job and can pay the mortgage.

Katzer, an engineering consultant, is one of thousands of homeowners who are underwater, the term applied to those whose homes are worth less than the mortgages. Many of these people are not in immediate danger of foreclosure, but their finances have been hammered by the housing crash and their pleas for help rejected because other borrowers are considered more desperate.

Katzer could do what some have done—walk away from his house and the loan. But he doesn’t think that’s appropriate. “I’m stuck in the middle,” he said. “I want to do the right thing. It’s incredibly frustrating.”

Mike Larson, a housing analyst with Weiss Research in Jupiter, Fla., said the government largely has failed to address the plight of homeowners who still are paying on underwater mortgages. “The reality,” Larson wrote, “is that many of these borrowers just can’t be helped under the current structure, and that’s why some people are just throwing up their hands and walking away.”

The problems facing underwater borrowers across Florida are hurting the state’s economy, said Sean Snaith, a University of Central Florida economist. Homeowners don’t want to spend money when their personal balance sheets take a hit. “It’s a negative wealth effect,” Snaith said. “It’s a pretty big burden that these people face, and it’s endangering the pace of our recovery.”

Participation in the Obama administration’s Home Affordable Refinance Program is limited to borrowers who owe up to 125% of the current value of their homes. But plummeting home prices over the past several years have left many owners owing more than that. Katzer bought his home for $460,000 in 2006, but he estimates it’s now worth somewhere in the $250,000 range.

For the most part, individual lenders won’t refinance if the homeowner isn’t eligible under the terms outlined by Fannie and Freddie, which together own more than half of the nation’s mortgages.

While government and lending officials sympathize, they say aid must go to homeowners who need it most.

In its most recent program for struggling homeowners, the federal government is committing $2.1 billion to 10 states hit hardest by the housing downturn. Florida is getting $418 million to fight foreclosures, and the Florida Housing Finance Corp. is sending more than $73 million of that to Broward and Palm Beach counties as part of a so-called Mortgage Intervention Strategy expected to begin by the end of the year.

At the end of the first quarter, about 44% of single-family homeowners in Palm Beach, Broward and Miami-Dade counties owe more than their properties are worth, said Zillow.com, a Seattle real estate research firm. Borrowers in hard-hit markets like Florida may not be able to break even in a home sale until at least 2020, according to California research firm CoreLogic.

Florida Housing Finance will use the federal money to make loans that will cover up to nine months of mortgage payments for eligible homeowners. It hopes to find lenders or investors willing to forgive another nine months of payments. Once homeowners resume making their mortgage payments, the loans can be forgiven after five years as long as the borrowers make payments on time and live in the residences.

But to qualify for the program, homeowners have to be out of work or in jobs with salaries that don’t let them meet basic living expenses. That excludes underwater borrowers who can make their mortgage payments.

“It made sense to us that most of the people at risk of foreclosure are without jobs or are underemployed,” said Cecka Green, spokeswoman for Florida Housing Finance. “This program is not going to help the majority of the people who need it. We understand that. But we wanted to target some of the people considered to be the most vulnerable.”

The Mortgage Intervention Strategy could help neighborhoods like Dave Rakszawski’s near Lantana, Fla. At least two houses on his block alone have fallen into foreclosure in recent months. He’d like to see owners get the aid they need so the community of split-level homes can recover. But he questions whether borrowers qualifying for the state mortgage payments will be motivated to find jobs that allow them to leave the program after 18 months. “Is that person going to benefit by it, or a year and a half from now are they going to say, ‘I still can’t afford it anyway?’” he asked. “Even if they’re given more time, some people really will have no intention of making it work. It’ll just be a free place to live for 18 months.”

Rakszawski, who manages an art glass company, said the government would be better off helping homeowners who live responsibly and are committed to repaying their debts.

Analysts say the only meaningful help for underwater borrowers still making their mortgage payments is principal reduction.

Banks want to avoid the financial hit, so the practice is not widespread across the industry. Bank of America did announce a mortgage forgiveness plan for some borrowers earlier this year.

Dianne Mattiace, a real estate agent in Lighthouse Point, Fla., co-sponsored a workshop recently to explain options available to struggling homeowners. She realizes it’s impossible to help everyone who needs it, but she also said it’s important for the government and lenders to reach out to underwater borrowers and give them hope.

Without it, she said, the housing market could tank again, as another wave of homeowners abandon their properties.

(c) 2010, Sun Sentinel.

Distributed by McClatchy-Tribune Information Services.

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