A state run program that provides loans to homeowners that can't make their mortgage payments due to a temporary job loss has a high success rate, according to a study by economists at the New York Federal Reserve Bank.
Around 80% of the borrowers who have received mortgage payment assistance under the 25-year old Pennsylvania program have retained ownership of their houses.
But it is not easy to get into this 2-year assistance program that provides loans of up to $60,000.
One key to the state's Homeowners Emergency Mortgage Assistance Program's success is a "careful screening process," the Fed study says.
Only 43,150 borrowers have received assistance under the state program out of 183,000 applicants. In other words, only 23% of applicants have received a life line.
The Fed researchers note that HEMAP is more cost effective than the federal Home Affordable Modification Program because the mortgage is not modified, arrearages are paid off and lender receives the regular monthly payments. The borrower can contribute up to 40% of the monthly payments.
Due to repayment of the loans, the average cost of a HEMAP transaction is $1,600, compared to $13,600 for a HAMP transaction.
"Pennsylvania's experience with the Homeowners' Emergency Mortgage Assistance Program suggests that lending by the government to a carefully screened group of unemployed borrowers can be a successful strategy to reduce foreclosures," the study says.
Fed researchers James Orr, John Sporn, Joseph Tracy and Junfeng Huang authored the 10-page report -- "Help for Unemployed Borrowers: Lessons from the Pennsylvania Homeowners' Emergency Mortgage Assistance Program."
