The Treasury Department rolled out the details of a $75-billion program Wednesday to save up to 9 million struggling homeowners.
The voluntary program has incentives for lenders and loan servicers to modify loans for delinquent and at-risk borrowers and refinance mortgages that are worth more than the homes.
Under one new incentive, $250 would be given to loan servicers for each second mortgage that's scrapped.
For emergency-room nurse Joan Lewis, the last hope to redo her mortgage has been the federal plan that would push lenders to rescue homeowners like her, current on her loan but sick over the likelihood of defaulting soon.
Her loan servicer has rejected her requests to switch her interest-only loan into a fixed-rate one without paying the $12,000 penalty to change the contract. With her overtime income cut and health problems in the family, Lewis balks at paying the fee.
"I really don't have any choice," the South Setauket resident said. "I'm going to pay interest only and I'm not ever going to own my home or have any equity in it.
"I earn enough to be able to pay the mortgage payments. The problem is to have enough for my taxes. I'll be OK 'til May. If I don't get enough overtime, I won't have enough money to pay my taxes."
As Long Islanders yesterday digested details of the federal program, some saw hope in avoiding foreclosure but also challenges in a financial industry that's still doubtful about embracing the voluntary plan. For one thing, loan servicers and lenders will need weeks, if not months, to ramp up for a new flood of refinancing and loan modifications, said housing advocates and lending industry officials.
Federal officials told housing advocates yesterday that a list of participating lenders and loan servicers would be posted on financialstability.gov.
"The ball's in their court," said Connie Lassandro, director of Nassau County's office of housing and homeless services. "Until we get some kind of definitive commitment from them on who's going to be on board, it's going to be very difficult to even move forward on this."
Any program that prevents foreclosures will breathe life into the Island's economy, several housing advocates said. However, the Economic Opportunity Council of Suffolk said the new plan may not help the most vulnerable homeowners - those who probably should not have been qualified for the mortgages they signed.
Jerry Coppola, who oversees the council's foreclosure-prevention program, said he wants more guidance on how high the debt-to-income ratio should be before lenders step in to rework mortgages. "They are leaving this up to interpretation and voluntary compliance," he said.
Paul Koches, executive vice president of Ocwen, which services thousands of local mortgages, said the company is ready to abide by the guidelines. But other firms have been hesitant because the program has no protection from lawsuits by investors losing profits on the loans, he said.
"If the servicer is faced with an opportunity to execute a loan modification that returns more cash flow to the investor than a foreclosure would, there would be legal exposure if you didn't do the modification," Koches said.
She's $50,000 behind on her mortgage, and the federal plan is her last hope. Her lender refused to lower her 6.25 interest rate to 5.25, but under the federal plan, her goal is now to get a 2 percent rate.
Lately, after wiping out her severance pay, pension plan, savings and 401(k) on the mortgage and living expenses, she has started to think she'll have to lose her home of 15 years.
"Do I get my prescription medications? Do I pay my mortgage?" she said. "I don't think I can do this anymore."
Mike McHugh, chief executive of Continental Home Loans in Melville, said the plan is a "tricky slope" with a moral dilemma for on-time borrowers, who might deliberately default: "If you don't make payments, you get a better deal. If you continue to make your payments, nobody wants to help you."