Thursday, Oct. 02, 2008

Foreclosure-aid program, law take effect

A $300 billion federal foreclosure-prevention program began Wednesday, the same day a state law aimed at protecting distressed homeowners from foreclosure-rescue scams took effect.

The three-year federal program will allow troubled homeowners who owe more than their home is worth to swap their mortgages for more affordable loans. The program, dubbed 'Hope for Homeowners,' was passed by Congress this summer as part of a massive housing bill.

"For homeowners in trouble, this may be the help that they need," Housing and Urban Development Secretary Steve Preston said.

To qualify, borrowers must be spending more than 31 percent of their income on mortgage payments. Loans made this year are excluded, except for those completed Jan 1. Borrowers must have made six months of payments on their loans.

Lenders, rather than borrowers, will decide whether to participate in the program, which requires them to take a loss on the initial loan.

The government estimates the program could help 400,000 borrowers, depending on lender participation.

The new Florida law places new regulations on those who promise to save homeowners from foreclosure in return for payment. Several such companies have been accused of taking money but doing little or nothing to help the homeowner, or stealing the equity of their homes.

"Legitimate foreclosure rescue entities will have nothing to fear by the enactment of this law," said state Sen. Mike Fasano, R-New Port Richey, the law's sponsor. "Only those who scheme to defraud should worry. It is our hope that, with the new penalties and requirements being placed on this industry, the bad actors will go out of business."

The law requires foreclosure rescuers to give homeowners the right to cancel a contract within three days of signing, and prominently display that right in the contract.

The contract also must include a recommendation that the homeowner contact his or her lender or mortgage servicer before signing, and inform the homeowner that the consultant is prohibited from accepting any form of payment until all services are completed.

Material from the Associated Press was used in this report.