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Struggling homeowners may get relief with new program

Lisa and Brian Gerstein, and their son, Jason,

Lisa and Brian Gerstein, and their son, Jason, 4, outside their Centereach home. Lisa Gerstein has cautious hope that the new foreclosure relief measures will help the. (March 26, 2010) Photo Credit: Newsday / Mahala Gaylord

The federal government threw potential life jackets Friday to struggling homeowners who haven't gotten much of a break: "underwater" borrowers who owe more than their homes are worth and the jobless.

Officials said the new moves, along with other tinkering of the year-old federal rescue plan, are aimed at the new waves of prime and jobless borrowers in the weak economy.

May affect thousands on LI
On Long Island, it could affect thousands of homeowners, who could have some mortgage debt written off or get a break from monthly payments. Last year, lenders started foreclosure proceedings on more than 13,000 homes and took back almost 900, according to RealtyTrac, which tracks foreclosures.

At the end of 2009, about 37,000 Long Island homes, or 7.2 percent of mortgaged properties, were under water or close to it, according to First American CoreLogic, a real estate data company. Company officials said Long Island is better off than most places when it comes to borrowers who have no equity.

Under the plan, underwater borrowers must be current on payments, must owe at least 15 percent more than their home's current value and have a FICO score of at least 500. Lenders would lower their monthly payments to about 31 percent of monthly income. The primary loan would be reduced by at least 10 percent, and that amount would be refinanced into a Federal Housing Administration loan, taking the risk off lenders' books.

If there's a second mortgage, lenders would get up to 20 cents for every dollar written off; old rules gave them only a dime.

Qualified unemployed homeowners would get temporary help while they look for employment. Lenders would bring monthly payments down to 31 percent or less of monthly income for three months, and possibly six months, by tacking payments to the end of the loan.

For Lisa and Brian Gerstein of Centereach, the announcement offers a glimmer of hope.

They paid $355,000 for their house in 2005 but now owe $327,000 on a home valued at only $275,000.

They kept up on payments but have been struggling since Brian's temporary layoff in 2006 and the added costs of day care and commuting to Manhattan.

Just four days ago, the couple was denied a loan modification because they didn't meet income guidelines.

"It kind of just defeated us," said Gerstein, who said she worries about putting food on the table. "I'm concerned that I'm going to max out on credit cards and I'll never be able to get out." 

Mixed views on the Island
The new changes and the current programs are expected to bring relief to up to 4 million borrowers, federal officials said. But the lending and real estate industries on Long Island have mixed views of the impact.

Peter Elkowitz, president and chief executive of the Hauppauge-based Long Island Housing Partnership, was optimistic.

"This will be another tool in the toolbox that will help our counselors to help work with families to keep homeowners in their homes," he said.

Mary Adams, a managing partner at Century 21 American Homes in Babylon, worries that the effort will fail if lenders don't embrace changes.

" . . . If these homeowners are going to apply for loan modifications and the banks are going to say 'no,' you'll be right back in the same spot," she said.

Still, others say that by focusing first on delinquent homeowners, the program is too little, too late.

"They took the people who were bad and they rewarded them," said mortgage broker Rich Biondi, whose office is in Farmingdale. "But the guy who struggles and hasn't been late, you can't help them."

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