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Housing life preservers not a catch-all

A bus drives by a foreclosed home in Las Vegas, Nev.

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TESS VIGELAND:For those of you keeping track, we're now on the third iteration of foreclosure prevention programs from Uncle Sam. First the Bush Administration had Hope Now, then Project Lifeline. And in March, the Obama Administration announced the Making Home Affordable program. Still the Center for Responsible Lending reports that so far this year it's tallied one million foreclosures.

Tamara Keith looked into why homeowners are having such a tough time grabbing onto those life preservers.


Tamara Keith: Typically, to refinance your mortgage, you need to have 20 percent equity in your home. But with home values in the basement, a lot of people owe more than their home is worth.

Or like Bob Lawrence, they owe pretty much exactly what it's worth.

Bob Lawrence: We couldn't qualify for a $400,000 mortgage because the house has depreciated so much.

Lawrence and his wife bought their house nine years ago. Then when the housing market got hot, they did what a lot of people did: They took money out of the house to make improvements. Now instead of owing $200,000, they owe $400,000. The house has vaulted ceilings, big windows and a deck that hangs out over the Alafia River near Tampa Bay, Fla.

Lawrence: We're at the widest part of the river so it's really a very nice place to live.

Lawrence is recently retired, and with the stock market down, their income was down a bit too. When interest rates dropped last fall, he called his mortgage broker looking to refinance and lower his monthly payment. But he got bad news. Home prices had fallen so much that the equity he thought he had was gone.

Lawrence: He said we're not even going to send the appraiser out there. It would be a waste of time. There was nothing we could do. We were in shock.

But then the Making Home Affordable Program came along. Under the program, people can borrow up to 105 percent of the value of the house, as long as they have good credit and a solid payment history. Fannie Mae and Freddie Mac, the government-backed mortgage giants, have temporarily changed their lending standards to guarantee those refinanced mortgages. Lawrence's refinance just went through and the lower interest payments are going to save close to $5,000 a year.

Lawrence: Well it certainly pays some of the bills. That's fundamentally why we did that.

According to data from Fannie Mae and Freddie Mac, so far nearly 25,000 mortgages have been refinanced through the program. For some, it's a chance to save a couple hundred dollars a month. For others it's the best way out of a problematic loan like one of those adjustable-rate mortgages pushing so many people to the brink.

But many people don't qualify. In many areas, home values have just dropped too far.

For Craig Freer in Arlington, Va., it was something else. His loan is owned by a private investor. Only loans owned by Fannie and Freddie qualify.

Craig Freer: I had no control over that, and if my loan was owned by Fannie or Freddie, I feel like I would immediately qualify for the act. But because I don't have a loan through them, I can hear about it all the time and think "That's me, that's me, that's me" but I can't do anything about it.

Freer is a government contractor in his late 20s. He bought this condo, his first home, back in 2006 near the height of the market. He didn't have money for a down payment, but at the time, he didn't need it. He took out two loans -- one for 80 percent, one for 20 percent. And he made sure he would be able to afford the payments. Freer was counting on home prices to keep going up so he could refinance into one conventional mortgage. But at this point he only has a few thousand dollars of equity and that isn't enough.

Freer: I just want my loan combined at the current rate and the fact that there's not a single bank who's willing to take my check every month baffles me.

He says one bank told him they'd be happy to refinance his mortgage if he could come to the table with $45,000.

Craig Strent on computer:So essentially I log into the Fannie Mae Web site.

Craig Strent is a mortgage broker at Apex Home Loans in Bethesda, Md. And he's been helping a lot of clients lately figure out who owns their loans.

Strent on computer: Asks you a couple pieces of information. Putting in your street address and the city that you live in.

Both Fannie and Freddie now have these simple online forms. But it turns out just qualifying may not be the only issue. Strent pulls out a chart.

Strent: This is the sound of me sifting through lender rate sheets.

And those lender rate sheets determine how your interest rate is calculated. The federal program doesn't get you a discount. As with any mortgage, several variables can cost you. If your credit score is less than stellar, if you own a condo instead of a house, or if you don't have much equity.

And Strent says these interest rate penalties add up.

Strent: Often times by the time you make those adjustments to the rate the benefits of doing the refinance, comparative to the cost, don't necessarily always make sense.

Add to this, the fact that interest rates are rising and a Making Home Affordable refinance is going to pencil out for fewer and fewer people.

In Washington, I'm Tamara Keith for Marketplace Money.

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