Listen: Bailout plan for homeowners

MPR’s Kerri miller interviews Lori Montgomery, a financial reporter for the Washington Post, and Cheryl Peterson, the manager of the Twin Cities Habitat for Humanity foreclosure counseling service in Minneapolis.

They discuss Obama’s new mortgage aid plan that he announced recently, but both homeowners and the markets are skeptical that the government's $50 billion proposal can slow the increasing rates of foreclosure.


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KERRI MILLER: Coming up on the first hour of Mid-Morning, President Obama is in Phoenix to announce the details of his plan to help Americans who are facing foreclosure. We'll talk about it and then we'll offer some advice if you find yourself in a similar situation. All of that as Mid-Morning begins in a moment. I hope you'll stay with us. First news.

PAUL BROWN: From NPR News in Washington, I'm Paul Brown. Industrial production fell in January. The Federal Reserve says production at US factories, mines, and utilities fell by 1.8%, more than most analysts had expected. Construction of new homes slowed to a crawl last month in the US. The Commerce department says the January pace was the weakest on record, as NPR's Dave Mattingly reports.

DAVE MATTINGLY: Builders were not busy last month. The Commerce department says construction of new homes and apartments dropped nearly 17%. It was down in all areas of the country. Building activity plunged almost 43% in the Northeast and 29% in the Midwest. With the US economy in recession and foreclosures continuing to rise, analysts had been forecasting housing starts to decline to an annual rate of 533,000. In fact, the Commerce department says that total was just 466,000. In addition, applications for building permits dropped nearly 5% in January, suggesting builders don't see demand for new homes increasing in the near term. Dave Mattingly, NPR news, Washington.

PAUL BROWN: President Obama is set to unveil a mortgage relief plan later today in Phoenix. It would help up to 9 million families restructure or refinance mortgages to avoid foreclosure. The president, who's to meet with Canada's prime minister in Ottawa tomorrow, is also trying to reassure Canadians about the Buy American Provision in the economic stimulus package signed into law yesterday. In an interview with the Canadian Broadcasting Corporation, he says the stimulus bill will in time increase the ability of America's trading partners to work within US borders. From Toronto, Dan Karpenchuk has more.

DAN KARPENCHUK: The interview was conducted in the White House two days before Mr. Obama makes his first trip to a foreign country as president. He told the CBC that Canadians shouldn't be too concerned about the Buy American Provision of the stimulus package because history has shown that protectionist policies can further damage world trade and prolong a recession. And he, again, maintained that while his administration is committed to beefing up the US economy, it will be done in a way that would eventually enhance the ability of trading partners to work within US boundaries.

He also touched on the future of the North American Free Trade agreement, suggesting that with $1.5 billion in goods crossing the border every day, now is not the time to see that trade diminish. But he indicated he's always wanted side agreements to NAFTA to bolster enforcement provisions on protecting the environment and labor. For NPR news, I'm Dan Karpenchuk in Toronto.

PAUL BROWN: Up to 17,000 more US combat troops will be on their way to Afghanistan. President Obama is deploying them to fight Taliban insurgents and to help improve security. Mr. Obama says military strength alone won't solve Afghanistan's problems, but that the troop increase is imperative. The Dow Jones Industrial Average is down eight points at 7544. The NASDAQ composite is down two points. This is NPR News. Support for news comes from the Ford Foundation, a resource for innovative people and institutions worldwide, on the web at

PERRY FINELLI: From Minnesota Public Radio news, I'm Perry Finelli. The Federal Home Loan Bank is giving Minnesota more than $6 million to help people buy foreclosed homes. The federal bank, biannually, gives competitive grants to nonprofits with housing projects. Minnesota got the vast majority of the bank's grants. Gary Dodge, with the Federal Home Loan Bank, says the money is designed to help save neighborhood property values. He says the grants and forgivable loans go to new homeowners who want to buy and rehabilitate foreclosed homes.

GARY DODGE: So that's what this money was targeted toward, is nonprofit groups that are going to work with people to get them ready for home ownership. And what a lot of this money will go for is down payment, closing costs, assistance for those families to get into those homes then.

PERRY FINELLI: Grants are distributed across the state by project. Ramsey County jury has convicted a Robbinsdale man for a string of crimes that terrorized a couple on Saint Paul's Grand Avenue in the summer of 2007. Defense attorneys for a 28-year-old, Gary Stewart argued police got the wrong man. But prosecutors said witnesses identified Stewart as the suspect in the crimes, which included rape. And DNA tests showed 98% of the population could be excluded from the rape but Stewart could not.

The US Army Corps of Engineers says it will start measuring the thickness of the ice on Lake Pepin today. The corps measures the ice in different spots on the lake each year to predict when the navigation season on the upper Mississippi will start. Lake Pepin is usually the last part of the river to break up because the current there is slower than it is on the rest of the upper parts of the river. The average opening date of the navigation season in Saint Paul over the past 10 years has been March 20th.

Right now in the Twin Cities, light snow, temperature, 23, North winds at 15, gusting to 25 miles per hour. Wind chill at 10. This is Minnesota Public Radio news.

SPEAKER 1: Programming on Minnesota Public Radio is supported in part by our underwriters. We thank our listeners and members for supporting them throughout the year. More information online at

KERRI MILLER: This is Mid-Morning on Minnesota Public Radio. I'm Kerri Miller. This hour, what to do about a new wave of foreclosures?

10,000 Americans are facing foreclosure every day, and that number may escalate if the recession is as long and as deep as some fear, which is why President Obama flew from Denver yesterday where he signed his new stimulus package into law. Straight to Phoenix today, where he'll unveil his plan to keep some Americans in their homes. That happens at 11 o'clock our time, by the way.

It's no coincidence that the president is doing this in Arizona. In a country where as many as 9% of all mortgages are either behind or in foreclosure, Arizona has been extremely hard hit. Topping the list, along with Nevada and Florida. Here in Minnesota, analysts believe the state will see a total foreclosure number of 27,000 in '08. In Hennepin County alone, there were more than 7,000 foreclosures in 2008.

We're going to talk this morning about the strategies that the president is going to bring to the problem, the role for the lender and the homeowners themselves, and how much it may cost. Then we'll talk about what to do if you face foreclosure and how to avoid it, if you're delinquent on your payments or you're worried about a mortgage rate that will adjust upward. Gerald Peterson of Habitat for Humanity is going to join us for that part of the conversation. But first, we turn to Lori, Washington-- She's a financial reporter for The Washington Post, and she joins us from Washington. Lori, good to have you this morning. Thanks very much for being with us.

LORI MONTGOMERY: Hi, good to be here.

KERRI MILLER: Hey, these foreclosure numbers are really staggering. 10,000 Americans facing foreclosure each day by the reckoning of the White House, millions more Americans who may be headed for foreclosure. And I assume this plan cannot help them all. So who do you think the president's really focused on?

LORI MONTGOMERY: Well, the one group that's critical here is dealing with people who are underwater on their mortgages. And those are the people who owe more than their homes are worth. They may have bought at the top of the market. They may have had an interest-only loan and never paid down any principal. And in this market with housing prices, just what they're expected to fall by a third off their peak value, millions of families are finding themselves-- I think the estimate is around 4 million families are finding themselves owing the bank more than they could sell their home for, which is-- it wouldn't be a big deal unless you lose your house or you get ill and you can't make the payments and then your options are virtually null.

KERRI MILLER: So, Lori, how do you-- just judging from the outline of this plan that you've seen so far, how does this specifically help those people that are upside down in the value of their homes?

LORI MONTGOMERY: Well, that's actually pretty unclear because at this point, we don't know whether or not the Obama plan will reduce principal, which in the case of somebody who owes $20,000, $30,000, $40,000 more than their house is worth, is going to be critical. It seems to me that unless they've got some plan to actually buy down the principal on the mortgage, that the help for those people is probably going to come through the bankruptcy provision.

And the idea there is that legislation would be enacted to change the bankruptcy laws so that your primary residence, just like everything else you own, could be renegotiated. The mortgage on your primary residence could be renegotiated by the courts. And the idea there isn't so much to force people, millions more people into bankruptcy. It's to force the banks to the table because the threat of bankruptcy, of course, means they could lose a lot more than if they actually tried to work it out with you.

KERRI MILLER: But, Lori, this is a provision that the banks and the mortgage industry really oppose. Aren't they likely to lobby hard against this if it ends up in legislation?

LORI MONTGOMERY: They have so far lobbied hard against it. They defeated it last year. I believe they killed it in the Senate. It's passed the House. It's died in the Senate. It's no more popular in the Senate than it was last year. But there are fewer Republicans. So it's got a little bit better chance. Plus, theoretically, if the Obama plan is sweet enough for the banks, you would think that perhaps they would back off on the opposition to the bankruptcy.

KERRI MILLER: Let me ask you a larger picture question here. Do you get the sense from the details of the plan so far that really what this is about is incentives for the mortgage industry and the banks to come to the table here or are there going to be some mandates aside from this bankruptcy provision that the mortgage industry has to play?

LORI MONTGOMERY: Well, that's a good question. I mean, what I've been told specifically is that there will be carrots and there will be sticks. And so far, the only stick that is apparent is the bankruptcy law. And as you point out, if they don't get that through, then what do you have left? I do not know whether they may be trying to put some additional mandates on perhaps banks that are tarp recipients, bailout, getting bailout money from the Treasury. It's pretty unclear.

I think so far, at least, what we've heard about is primarily carrots and inducements to try to get the services and the mortgage holders to the table. I mean, one of the big inducements here would be, for example, a safe harbor provision for the servicers. And these are the people that manage your mortgage payments for the people, the investors, who actually own the loan.

And part of the problem they've been running into is that, a. the servicers have no financial incentive to help you out because they earn fees, collecting your money, and going after you. And they could actually face liability if they modify your loan because they owe their duty to the investors. So safe harbor provision, the idea there would be to exempt them from any lawsuits from the investors if they do agree to play.

KERRI MILLER: Lori, you used a phrase a little earlier, "buy down", use some of the money that the president has available to him. He's talking, I guess, about $50 billion right now to buy down. Are you talking about buying down the mortgage interest rate itself, buying down the principal? What do we mean?

LORI MONTGOMERY: So far, they have not been talking about buying down the principal. They have been talking about buying down point-for-point the interest rate. So $50 billion would be available for presumably this activity. There's also some indication that they might use Fannie Mae and Freddie Mac to get involved. And somehow, I guess, they could borrow-- because they've been taken over by the government, they could borrow unlimited sums from the government so Obama wouldn't have to go back to Congress to ask for more money. And perhaps they could shovel money into the banks through that mechanism by having Fannie and Freddie buy up the modified mortgages.

KERRI MILLER: Have you been writing at all about the potential backlash from other mortgage holders who say, look, I've had to scrimp and save, but I am paying my mortgage. And now you're going to come in and make it easier for some of these people that didn't do what I had to do?

LORI MONTGOMERY: Well, no. And the reason that we haven't been writing about that is because things have gotten so bad since we were writing about that last summer. I mean, you do not hear the words "moral hazard" around Washington these days. You heard it a lot last summer when the original housing plan was moving through Congress. And that did include a provision, a new program through the Federal Housing Administration whereby there were government incentives to actually help buy down the principal but on loans that-- specifically for people who are underwater and couldn't refinance otherwise.

But the fees on that program were so large that the banks have not taken advantage of it. Literally, only like a couple of hundred mortgages have been modified. And since then, I mean, last summer, we were talking about 6,000 people a day going into foreclosure.


LORI MONTGOMERY: Now, as you point out, we're talking about 10,000 families a day going into foreclosure. Last summer, we were talking about a maximum of 2 million people losing their homes by the end of 2010. Now we're talking about Credit Suisse has put out a report that indicates 8 million families could lose their homes in this crisis. So things have just deteriorated so rapidly that, frankly, the conversation in Washington has moved away from the idea that it's not fair to the average homeowner who is paying his mortgage and doing all the right things. Because the concern is, of course, that the average homeowner is going to get hurt if everyone around him falls into foreclosure.

KERRI MILLER: All right. Lori Montgomery is with us this morning. She's the financial reporter for The Washington Post. And we've asked her to join us to tell us a bit about the details and the implications of them, of President Obama's plan unveiling this morning in Phoenix to help Americans who are facing foreclosure. And Lori story crossing the wire here from Phoenix on the AP says President Barack Obama's plan to tackle the foreclosure crisis will spend $75 billion in an effort to prevent up to 9 million Americans from losing their homes. So up now to $75 billion and they're trying to help 9 million Americans. That's not going to take care of everyone, is it?

LORI MONTGOMERY: Actually, if they're actually talking about helping 9 million families, that would cover the projections on--


LORI MONTGOMERY: --foreclosure. I'm not-- yeah, I think it would.

KERRI MILLER: You think that-- you think they can do it?

LORI MONTGOMERY: Not with $75 million. I mean, I have not seen that story. I don't know how they plan to parcel out that money, but it seems like it's not going to be enough. I mean, there was an economist, Martin Feldstein, who has been quite involved in the stimulus debate and the housing debate, came in to consult with Senate Democrats the other day. And he put the price at fixing this problem at $250 billion.


LORI MONTGOMERY: So I don't know what they plan to do with that $75 billion. But if they want to actually stop foreclosures, it doesn't sound like a big enough number.

KERRI MILLER: Let's take some calls here. 800-242-2828. If you're listening in this morning as we talk about some of the specifics of President Obama's foreclosure plan to be unveiled in Phoenix at 11 o'clock, our time. 651-227-6000. If you're online this morning, and click on Send a question. And in a moment, we're going to open the lines to those of you who are looking for some advice.

If you're in this situation, you're upside down in the value of your home and your mortgage, you've been delinquent on some of your payments, your adjustable rate is going to go up and you're worried about how you'll pay your mortgage in the months to come, Cheryl Peterson is with us from Habitat for Humanity, their Mortgage Foreclosure Prevention service. And so she's going to take some of your questions on that. But I'll give you the number. You can think about joining us for that. 800-242-2828. 651-227-6000. Online, and click on Send a question to reach us online. To Dan in Minneapolis. Hi, Dan.

DAN: Hi. How are you doing today?

KERRI MILLER: Good. Your question for Lori.

DAN: I'm wondering why they don't look at giving everybody in the United States a 4% interest rate on their home mortgage--

KERRI MILLER: Just to help everyone.

DAN: Yes--


DAN: --they in their pockets.

KERRI MILLER: They talked about that, didn't they, Lori?

LORI MONTGOMERY: They did talk about that. The Republicans were pushing that during the recent stimulus debate. They wanted to make it part of the stimulus package. And if I'm remembering correctly, I think the former Treasury secretary, Hank Paulson, was looking at a similar plan. The problem is, it's enormously expensive. I mean, trillions of dollars. The proposal was-- the Congressional Budget Office did a cost estimate of the proposal just a few weeks ago when we were having the stimulus debate, and it was literally in the trillions of dollars. And we're so far in debt now, I'm not sure we could afford to do that.

KERRI MILLER: That would get at that. And I remember when Senate Republicans initially brought that up, that would get at this issue that we talked about a moment ago, the moral hazard issue. But as I think you've told us, that's not top of mind right now in Washington. To the phones, to Dan in Hopkins. Hi, Dan.

DAN: Yeah, good morning.

KERRI MILLER: Good morning.

DAN: I'm calling to see if you've heard anything when it has to do with loans that are on a specifically styled home of a manufactured home. Kind of what I'm getting at is, my loan is with Bank of America. And when I took that out, it was a 5/1 ARM. And then I'm due to adjust this coming July. In September of '07, I went to do a refinance again. And during the process, after the appraisal came back, Bank of America came to me and said that this is a manufactured home. We don't lend on manufactured homes. Well, I've been a Bank of America customer since '04.

KERRI MILLER: So you're wondering, is there anything in this plan-- I don't know that we've got enough detail. Do you know, Lori, to answer that?

LORI MONTGOMERY: I'm actually looking at an executive summary that I just received right now. But I can't imagine it goes into enough detail that I would be able to give an answer to your caller about manufactured homes.

KERRI MILLER: Dan, we'll see if we can find out and--


KERRI MILLER: --try to get back to you. If you want to send us a question online. We'll see if we can answer that, OK. To the phones, to Jim in Minneapolis. Hi, Jim.

JIM: Hi. Anybody who bought a house with less than 20% down had to take out mortgage insurance.


JIM: I haven't heard a word about what's happened with the mortgage insurance. I would think that those insurance companies should be paying for a lot of these foreclosed homes.

KERRI MILLER: Lori, I've wondered about that, too. What's happened to all this PMI that people had to pay for?

LORI MONTGOMERY: I don't know the answer to that. It's a good question. I imagine that the insurance companies are as overwhelmed as the banks are. I mean, isn't it an insurance company to which we have given the absolute largest amount of money in the bailout?



KERRI MILLER: I want to ask you whether you think this is the last time that the Obama administration is going to have to intervene on this. I mean, you know, they're talking-- there have been some economists who have said one stimulus package is not going to be enough. Do you think a single plan for this is going to be enough?

LORI MONTGOMERY: Well, I think it's really hard to say. I mean, we're just now getting the details. And until we know exactly what it is they want to do, it's going to be difficult to tell what-- whether or not it's going to work. It's the same with the stimulus. They passed a nearly $800 billion bill in the end. And you're right, some people are saying it's not enough, but we're not going to know until we wait and see what the economy does.

KERRI MILLER: Lori, a real pleasure to have you this morning. I know you need to go work now to report on what's going on. Thank you so much. We really do appreciate it.

LORI MONTGOMERY: Sure thing. Lori Montgomery is the financial reporter for The Washington Post and she was joining us this morning from Washington. Cheryl Peterson has come into the studio this morning. She is Director of the Foreclosure Prevention service at Habitat for Humanity, and she's in the studio. Hi, Cheryl.

CHERYL PETERSON: Good morning.

KERRI MILLER: Good to have you here. Sorry about the mangling of the title there. It's a long one. Now, let me tell our listeners here that if you find yourself in a situation where you may be facing foreclosure, you're upside down in the value of your mortgage, you're going delinquent on your payments, or you're concerned that your mortgage is about to adjust upwards and you don't know if you're going to be able to make the payments, Cheryl is here to give some advice about that. 800-242-2828. If you're in the metro, 651-227-6000. If you're online this morning, and click on Send a question to Peter in Saint Paul. Hi, Peter.

PETER: Hi. How are you?

KERRI MILLER: I'm good. Your question for Cheryl.

PETER: Yeah. Here's my situation is, I bought my house a number of years ago through a local bank and on the advice of the local bank, they sold the mortgage to Countrywide and I had an adjustable. They said, don't worry about it. And a couple years now we can readjust and get the rates. Well, obviously, things went bad in the last three or four years here. And I am very much upside down. I have lobbied Countrywide now seven separate times to help me readjust and get this mortgage back in line so that we can afford it.

And we're current, but it takes every dime I got to be current. And they send me a letter back saying, you know what, we appreciate your efforts here, but we can't help you because you are in good status. But I don't know how long I'm going to be in good status, given everything that's happening with the economy, and work, and things that are going forward. And I'm in a miserable spot here because in six months, I won't be able to afford what I've got going. I keep going to these guys asking how do we get this to write itself. And I kind of get stiff armed on this unless you're going to have to figure it out.

KERRI MILLER: Peter, let's see what Cheryl has to say.

CHERYL PETERSON: Unfortunately, not a lot of lenders are necessarily being preemptive about fixing interest rates before they adjust. I know specifically with Countrywide, with the Bank of America takeover, I know that they do have more programs that are supposed to be coming out. And one of the things that you could potentially look at is the HOPE for Homeowners refinance product, which came out of the legislation from last year and see if you would potentially qualify for that.

KERRI MILLER: HOPE for Homeowners. What is that?

CHERYL PETERSON: That's the FHA product that was enacted last summer, basically, to refinance homeowners who are in foreclosure or at risk of foreclosure. The other product that's still out there and I know there haven't been a lot of loans that originated with this, but the FHA secure. So you could actually contact Countrywide directly and ask if they're either doing FHA secure or if they're also doing the HOPE for Homeowners. And that could potentially get you into a better interest rate than you're in. The other advice I have, honestly, is just persistence, calling your mortgage company and keeping on trying to get them to fix your interest rate is probably what's going to pay off the most.

KERRI MILLER: You know, Cheryl, it's odd to hear you say that a lot of these mortgage lenders do not want to be preemptive because when you think of good business practices, that's exactly what you'd think that they'd want to do. Why not?

CHERYL PETERSON: They're flooded with people who are actually in foreclosure. And unfortunately, the homeowners who are current and trying to be proactive, they just don't have enough time. So they're going to look at them.

KERRI MILLER: They're dealing with the people that are not making the payments first?


KERRI MILLER: To the phones, to Shel in Minneapolis. Hi, Shel.

SHEL: Hi. Two things. First, I want to answer the PMI question from earlier.


SHEL: And the answer to that question is, most of these exotic loans did not require PMI. It is a non-issue for the vast majority of these loans particularly subprime and All Day loans. My comment or question is really about, is there a way that we as individuals can really pressure the financial institutions to take more ownership in this, to be more proactive? I allow customers to be more proactive. I appreciate what the lady was saying from Habitat for Humanity, but I just really feel as though they own a lot of this responsibility and everyone else is suffering. And is there a way that we can lobby as a public to do something and force these banks to make adjustments to deal with folks?

KERRI MILLER: Yeah, your use of the word "lobbying" may be the key to this as lobbying Congress as citizens or lobbying state legislatures as citizens to get some of the accountability in place. Cheryl, any other idea about that?

CHERYL PETERSON: I agree with that completely. And I have to say, as far as lenders being willing to actually do workouts and work with homeowners who are in foreclosure, the one thing I have to say is, ultimately, if that homeowner doesn't get foreclosed on, the investor and the servicer are all making more money in the long run. And that's something that I think really needs to be looked at.

KERRI MILLER: Yeah, that it's to their interest to try to work this out. And yet, as Shel points out, and I think as we talked with Lori there briefly, they do not seem to be motivated to come in with lower interest rates or to work it out. Hopefully, the legislation that the president is talking about will make a difference in that. To the phones, to Brett in Saint Paul. Hi, Brett. Thanks for waiting.

BRETT: Hi. Thank you. Well, I've got-- I'm getting married in June. My fiancée owns a condo which we're going to try and sell. Now, it's upside down about between 25,000 and 30,000 if we sell it. Are there any programs that might help us out?

CHERYL PETERSON: There are. There's actually something that you could potentially do called a short sale, and that's basically where the lender would be willing to accept less than you actually owe on the mortgage. And lenders are more and more willing to do short sales in this market just because they know, basically, if you're able to find a buyer and that buyer isn't able or isn't willing to offer enough to pay off that mortgage, rather than having that property get foreclosed on, once again, they're going to save more money by willing to accept less upfront than foreclosing later on.

KERRI MILLER: So short sale-- can you go online and check that out? I mean--

CHERYL PETERSON: You can actually--

KERRI MILLER: --information about that.

CHERYL PETERSON: There is information about that. Most realtors now are usually aware of what a short sale is and what exactly needs to happen to accomplish that. The other thing you can do is just contact the lender directly and ask them if a short sale is a potential option and they'll usually give you some information about exactly how many months you have to have the property on the market for in order for them to look at settling for less than what she owes.

KERRI MILLER: Brett, I hope that helps. Online here, Cheryl, from Greg in Edina says, I've been sacrificing things to pay extra money each month to get my mortgage paid off early. Why should I subsidize people who made bad decisions? I mean, this is that moral hazard piece of this that we were talking to Lori Montgomery. I suspect you're going to hear more about this now that the president's plan is about to be released. What would be your answer to that as someone who deals with people who are really in trouble every day?

CHERYL PETERSON: Mortgages that have originated the last couple of years, the exotic products that are out there are extremely complicated to understand as far as the closing documents and the terms. And the terms are not clear as far as my mortgage payment is going to go up this amount. I have a perfect example of somebody that we just saw last week at our program. She got into a negative amortization loan, which means that she wasn't even paying off full interest on the loan. She was paying less than the full interest, which means--

KERRI MILLER: No principal?

CHERYL PETERSON: No principal, which means that her principal balance actually increased rather than decreased. And eventually, her payment went from about $800 to $1,700. I was looking through her documents, looking at the Truth in Lending. It was not blatantly laid out clear that that exactly was what's going to happen. And honestly, the loans that originated, a lot of the consumers out there who kind of feel like, oh, homeowners should have known what they were getting into, anybody, no matter how knowledgeable about mortgages you are, unless you're in front of a computer with an amortization calculator and actually know mortgage terms, it's going to be impossible for you to figure out what your payment is going to be.

KERRI MILLER: A lot of people just did not realize the complexity of what they were signing up for--


KERRI MILLER: --and now they've gotten caught up in this. To the phones, to Mike in Saint Paul. Hi, Mike.

MIKE: Hello.

KERRI MILLER: Your question.

MIKE: Three years ago, 2006, bought a home. First mortgage company I was working with, the mortgage company packaged together another backup second mortgage through a local bank, Bremer, to avoid that insurance. So it was a tactic. And then took out a line of credit with Bremer in addition to that second mortgage to rehab the house. Now, back in 2006, the first signs of this debacle were starting to plummet. I'm just curious, as a consumer coming up here, I'm supposed to reset in two years. What's going to happen relative to both loans and trying to redo these loans?

CHERYL PETERSON: Well, as far as Bremer goes, I would think that you should be able to work with them fairly easily. In general, local lenders tend to be a little bit easier to work with. As far as your first mortgage, I'm not sure exactly who the company is, but just being proactive about contacting them before you do get into trouble and before the loan resets is the best advice I have.

KERRI MILLER: How far out, Cheryl, would you say? I mean, he says he has two years. Would you start working on this a year out or what?

CHERYL PETERSON: I would probably say about six months before the loan resets on average. The closer to the reset you are, the more willing the lender is going to listen to you.

KERRI MILLER: If you're getting a busy signal as you're calling in here, be patient. Call us back. We have full lines at the moment, but you can always reach us online. And we'll get to more of our online questions and comments here in just a second. and click on Send a question. And when some of our lines open up, 800-242-2828. 651-227-6000.

Asking you if you find yourself in a situation where you're potentially facing foreclosure, you're upside down in the value of your home with your mortgage or you're struggling not to be delinquent. We have spent the first part of our conversation here talking about the plan that President Obama is going to unveil in Phoenix here at 11 o'clock, our time. Now, Cheryl Peterson is with us. She's manager of the Foreclosure Prevention program at Twin Cities Habitat for Humanity. So you have questions about your own situation, she's your gal. To the phones, to Pete in Minneapolis. Hi, Pete.

PETE: Hi. Actually, this question was more for Lori Montgomery, your previous caller, but it's a suggestion. What about if you owe $300,000 but your home is worth only $225,000, if the government could step in and have the two-- the primary broken apart into a first and second, have the government hold the second and refi the first and let the banks hold the first and continue to make payments.

KERRI MILLER: don't know if that's in the works. How does that sound to you, Cheryl?

CHERYL PETERSON: I can actually comment on that. I know that there are some lenders who are actually looking at programs like that. And from what I've heard-- I haven't actually seen it. Just from other counseling agencies, I have heard that they have actually seen that happen, with the exception of the second isn't necessarily insured by the government, but the lender, rather than actually forgiving a principal balance, will place the second lien on the property and make the first mortgage affordable, and the second would be deferred and payable when they either refinance in the future. Or if they were to sell the home.

KERRI MILLER: Cheryl, what does your organization actually do? If you-- as some of our callers are calling in to tell us they're in trouble either with or they're going to be in trouble making the loans or they find that the value of the home has declined, so they come to your office and you do what?

CHERYL PETERSON: Basically, the first thing we do is kind of get an assessment of their situation. So we want to know the terms of their current loan, the reason for delinquency, or if they're not delinquency, why they're calling us. And then we actually sit down and meet with them, talk about the foreclosure process, go over different workout options that their lender may be willing to do. And then they also sit down with a financial counselor so we can see exactly what would be affordable for them.

KERRI MILLER: And do you ever call the lenders themselves to say, we're trying to work this out. How willing are you to do that?

CHERYL PETERSON: Yeah. Actually, once they've met with the financial counselor and we know what's going to be affordable, we then negotiate with the lender based on what exactly is going to be a long term solution for that homeowner.

KERRI MILLER: How willing have you found the lenders to do that?

CHERYL PETERSON: Honestly, over the last year to a year and a half, lenders have been increasingly more willing to look at modifying terms and making mortgages more affordable. But there's still a long ways to go. I mean, a couple of years ago, the majority of subprime lenders out there were not willing to modify loans at all. And if you were, delinquent repayment plan was typically your only option. And it's increased, but by no means is it easy to actually get a workout on a loan.

And the main thing is getting something that's going to, once again, be long term affordable is what's even more difficult to do. One of my fears is that a lot of lenders are working out plans right now to get somebody current, but they're not necessarily plans that are going to be affordable over the long term. So there's some modifications out there that are resetting arms, which means that they're fixing the interest rate for another two years or five years. But then after that period, it will start adjusting again, which means that we're just going to be back in the exact same situation that we're in with those homeowners who have gotten those modifications.

KERRI MILLER: Online here from Sue in Duluth asks, what are the consequences of a foreclosure besides a bad credit rating? Can the banks still come after you for what you owe on the house? Do you know, Cheryl?

CHERYL PETERSON: Yes. As far as the first mortgage goes, there isn't a deficiency judgment as long as you have gone through foreclosure by advertisement, which is the typical foreclosure that 99% of people go through in Minnesota. If you have an 80-20 loan, the second mortgage is if the first mortgage forecloses, unfortunately, they can come after you. And I've actually seen an increase in deficiency judgments against homeowners who've gone through foreclosure after the redemption period. And if you have a $30,000 to $50,000 deficiency judgment against you, that's a lot of money to pay back. And they could potentially garnish wages or seize your bank or checking account.

KERRI MILLER: So they can follow you for, potentially, years--


KERRI MILLER: --on something like that. To the phones, to Paul in Edina. Hi, Paul. Thanks for waiting.

PAUL: Hi. Thanks for taking my call. I'm a residential appraiser and I'm kind of surprised to continue to hear people saying I was responsible. Why should I subsidize those who weren't? The fact is, we're all in this together. And if foreclosures continue and the housing market collapses, everyone will be hurt, including those people who mistakenly think that they're isolated from or insulated from the problem.

KERRI MILLER: Well, that's the argument I hear on the other side, Paul. But I think you're going to hear more and more of they're getting deals that I didn't get and I scrimped and saved to pay the mortgage. I don't know. Maybe that's just--

PAUL: It doesn't matter.

KERRI MILLER: --human nature.

PAUL: If you lose, you're going to lose one way or the other.

KERRI MILLER: Right. Yeah. And I think Lori Montgomery pointed out that if homes in your neighborhood are going into foreclosure, the value of your own house is going to be in trouble, too. That's, as an appraiser, I'm sure that's something you think about.

PAUL: Absolutely.

KERRI MILLER: OK. Good to have your call. Thank you.

PAUL: Thanks.

KERRI MILLER: Back to the phones. To Amy in Maple Grove. Hi, Amy. You're on Mid-Morning. Thanks for waiting.

AMY: Hi. Thanks for taking my call.


AMY: I am-- I'm one of those folks that folks probably don't feel quite too sorry for. I got a jumbo loan and a second mortgage a couple of years ago really for probably quite a bit more than what we should have been lent. Now, our house is valued at about $180,000 less than what we owe on it. We've made all of our payments and we continue to.

However, like some of your previous callers, it is-- it really takes just about everything. We are starting to go into some more significant credit card debt but have not missed any mortgage payments. And I'm just wondering, are there any products or any help or solutions out there for folks with these really large loans and houses that are significantly devalued now versus when we bought them two years ago?

KERRI MILLER: All right, Cheryl, what do we know about that?

CHERYL PETERSON: Unfortunately, with jumbo loans, I want to say that the HOPE for Homeowners program, I think that there are loan limits on that. That's something you could contact your lender directly about. I really haven't heard of a lot of solutions for people in your situation.

The one thing, if you do think that you're going to fall behind, you could contact your lender and see if they would be willing to look at some sort of a principal reduction, just because in your situation, if you're looking at increasing your unsecured debt and your credit card debt in order to pay for your living expenses, that's something that's not necessarily going to be long-term feasible for you to continue doing. And so--

KERRI MILLER: Get in touch with the lender.

CHERYL PETERSON: Yeah, get in touch with your lender.

KERRI MILLER: OK. Online here from Robert, Cheryl, in Minneapolis. He says, my ARM adjusted last November and it went down as it was based on Treasury bonds. Not all ARMs worked out poorly. That's a really good point. And how lucky for you that it was based on Treasury bonds. I haven't heard much about that.

CHERYL PETERSON: Well, it's not guaranteed, though, that your interest rate is going to stay low like it currently is. I will say with the current interest rates, the way they are, we've seen numerous individuals who their interest rate had adjusted up and then it went down because of the current interest rates.

KERRI MILLER: So it does happen?

CHERYL PETERSON: It does happen.

KERRI MILLER: Not that often, though.


KERRI MILLER: To the phones, to Pat in St. Cloud. Hi, Pat.

PAT: Hi.

KERRI MILLER: Your question?

PAT: Recently, I've been laid off, whatever, last couple of months, as with a lot of people. And I have a fixed rate and I'm just was wondering at what point-- and I'm current with my current payments, whatever mortgage payments. But I guess in hindsight or I guess at what point do I say-- and I understand the implications if I default on my loan. Get the seven-year bad luck thing, but at what point do I say, you know what? I'm just putting money into the house I just bought a couple of years ago, so there's no value in it.

Like everyone else, it probably lost $20,000, $30,000 from what I paid. So I'm basically putting money into a money pit. I'd have to live in that house for five, six years to even get back to where I even-- for the market to even recuperate what I even paid for it. So at what point do I say, you know what, this month I just-- I understand the seven years. Take the money, go back to school or go.

KERRI MILLER: You're saying walk away from it, Pat?

PAT: Yeah.


PAT: I'm putting money into a losing proposition, basically, and it's like-- and then I'm basically postponing the inevitable maybe six months down the road. I don't know.

KERRI MILLER: Cheryl, what do you tell people that come in and say, I'm getting ready to walk away from this house?

CHERYL PETERSON: Well, it's an individual choice. I would always say don't just walk away and allow the lender to foreclose on the property.


CHERYL PETERSON: That's going to be worse for your credit. There's some other options out there for homeowners who do want to walk away. So one of the things you could potentially do is what's called a deed in lieu of foreclosure. And that's going to look slightly better than a foreclosure. And essentially, a deed in lieu of foreclosure is where you would give back the property to the lender. And the lender actually does have to accept the deed in lieu. But once again, because of the housing market, I think that it's more likely that lenders are going to do that now than they once were.

KERRI MILLER: So you could call your lender and say, I'd like to work out a deed in lieu of foreclosure, basically, instead of foreclosure. And you say many of them are willing to do that?

CHERYL PETERSON: Correct. Well, there's an increasing amount that are willing to do that. Not all.

KERRI MILLER: OK. Online here from Yvette in Wayzata asks, aren't we in danger of creating yet another entitlement program, home ownership, that's-- the federal government getting involved in this?

CHERYL PETERSON: I don't think so. Home ownership is good for everybody. It's good for the community, neighborhood. And we wouldn't have been in this mess that we're in currently, had loans not originated that weren't affordable to begin with. And the fact of the matter is, everybody was making a lot of money for the last five years or so when homeowners who were in products that weren't long term affordable could refinance before they fell behind or refinanced when they did fall behind. And it really is in everybody's best interest to keep the current homeowners, who are already in home ownership, in their homes and not let the properties go vacant. That's not going to be good for anybody in the community or our economy in general.

KERRI MILLER: I think there's also some frustration out there on the part of Americans who see the people that were authorizing these, as you say, exotic loan products, who were running companies that said, hey, throw out loans, doesn't matter, don't do the due diligence. We have not yet seen, I don't think, a lot of accountability for that. Would you disagree with that or agree?

CHERYL PETERSON: I agree with that. There needs to be accountability for, I mean, the investors who invested in these products, knowing that the borrowers could not afford the products, [? seeded ?] income loans in general. Loans were originated with no income documentation, whatsoever. And that's absolutely ridiculous.

KERRI MILLER: To the phones, to Heather in Saint Paul. Hi, Heather.

HEATHER: Hi. Time and time again, I'm hearing the questions, particularly on this show, why are mortgage companies not working out better deals with people who are at risk of foreclosure or are in foreclosure? So I asked a banker friend of mine and a mortgage friend of mine this question, and the answer they gave me is that it's not to their benefit to do that because they can consider this a loss on their balance sheets and receive great tax benefits. Is that true?

KERRI MILLER: What do you think, Cheryl?

CHERYL PETERSON: I'm not necessarily sure I can completely answer that question. I'm not sure what the exact tax benefits would be on that. I would think that that's probably not true just because the costs is associated with foreclosure are pretty hefty. And then you also have to take into account the servicer who's been collecting the mortgage company no longer is collecting that money, and that investor is no longer getting the money from the mortgage payments that are coming in. And so there's several different entities that are taking significant losses. So it's not just one entity--

KERRI MILLER: One write off at the bottom line. I'm glad Heather called with that, though. It is puzzling to me as well that they have been, a lot of these lenders, so lackadaisical about working with homeowners who are trying to stay in the homes because that is to the benefit of everyone, right.


KERRI MILLER: And the president's plan is going to give them incentives, I think, from what Lori Montgomery was telling us, but not necessarily mandates. So to the phones, to Jean in Minneapolis. Hi, Jean.

JEAN: Good morning. Yes, there was an article in this morning's Star Tribune about a lawyer or lawyers that are using a tactic in which they're suing the banks on behalf of foreclosed borrowers, demanding that the banks produce the actual original note. And it's, I guess, in some cities or wherever this is happening that some of the banks have not been able to produce them. And as a result, the banks ceased their foreclosure proceedings. Is this something you've heard about and something that should be pursued by foreclosed borrowers?

CHERYL PETERSON: That's not something that I've heard about, but I do know that there definitely are legal ways that homeowners who are in foreclosure can potentially help their situation. Our program, we actually do work with attorneys both at Legal Aid of Minneapolis and the Foreclosure Relief Project in Saint Paul. And there are significant amount of loans that originated that things weren't always on the up and up. So, for example, one of the things that we sometimes see is a notice of right to rescind wasn't given to the borrower, which is required, which would then potentially give that borrower significant decrease in their principal balance.

KERRI MILLER: Does the homeowner-- if you're going through some kind of legal proceeding, does the homeowner get to stay in the house while you're doing that?

CHERYL PETERSON: Typically, usually what we'll do if we do a referral to an attorney, we'll continue to work with the lender ourself as well. So none of my staff is attorneys, so it would be a referral to an outside source. And basically, we would see who came up with the better deal between looking at the legal remedies and looking at what we're able to do and negotiating with the lender.

KERRI MILLER: Cheryl, at the end of the show here in a couple of minutes, I'm going to ask you for some websites that we can give out for listeners to get more information on some of what you're talking about. So be thinking about that, OK? To Anne in Saint Paul. Hi, Anne.

ANNE: Hi there. My question is sort of double jointed, but I'm mainly wondering when you are facing foreclosure, who can you trust to help you? I've heard of the HRA. The Washington County Housing and Redevelopment Authority is someone I know-- a friend of mine has worked with. But how do you know who you can share information with and who you can actually trust?

KERRI MILLER: OK, good question.

CHERYL PETERSON: That's a great question. There is actually a statewide network of foreclosure prevention counselors that-- all of our services are completely free of cost. And the Minnesota Homeownership Center is actually the central entity that can refer you anywhere, anywhere in the state to a trusted agency. And I can actually give their phone number out at 651-659-9336. And I will actually say Washington County HRA is a part of that network. I know the counselors there myself. They're great. So if you are in Washington County and need assistance, definitely go to them.

And that actually brings up another good point. There are a lot of solicitations that homeowners get from fee-based companies stating that if you pay us this fee, we'll be able to modify your loan. Well, for foreclosure prevention counselors, if you pay us this amount, we'll be able to save your home. Definitely go to the network of statewide counselors through the Minnesota Homeownership Center. Do not pay anything for foreclosure prevention services whatsoever.

The one thing I have to say is, there's no guarantee that anybody is going to be able to save your home. Anybody who says that they are and definitely can save your home is not being honest and truthful with you.

KERRI MILLER: So stir clear of these solicitations. It might come in by phone or mail of somebody to help intervene in your foreclosure.


KERRI MILLER: Isn't there a limit, though, to the number of people that you can help in some of these other free services?

CHERYL PETERSON: No, there's actually-- because of the increase in foreclosures, there's actually more foreclosure prevention counseling programs out there. So there is no limit. Anybody and everybody who calls, we are able to give them information on their situation and see if there's potential remedies to get them out of foreclosure.

KERRI MILLER: OK. To the phones, to Ken in Mankato. Hi, Ken.

KEN: Hello.

KERRI MILLER: Hey, your question.

KEN: I just have a comment. The guest had mentioned that the foreclosures really don't help anybody out. But if foreclosures are bringing the price down, which I think most people would generally agree, then it makes it more affordable to people who couldn't afford a higher price.

KERRI MILLER: You mean to the next people that are going to buy it?

KEN: Yeah. I mean, as the prices come down as they correct through the market process, then it makes it more affordable to people.

KERRI MILLER: But Ken, isn't it true that there really are not-- there's not a big house buying market out there right now. So those foreclosures of-- I mean, I've seen this. The foreclosures often sit there for months, if not years.

KEN: They'll sit there, as long as they're priced inappropriately. At a certain price, they become liquid.

KERRI MILLER: Cheryl, what do you think of that?

CHERYL PETERSON: I think that's actually a really interesting perspective. On the one hand, actually, the market really was inflated. And so the housing market has decreased so dramatically that you are correct, it has decreased home prices. And currently, there are more affordable properties on the market. One thing, though, to beware of foreclosed properties, they typically-- if you're going to buy an REO property from a lender, it comes as is, and beware of potential issues with that.

KERRI MILLER: Yeah, we've-- John Trostle has been on our show a number of times to talk about this specifically. He's an inspector, and he says you really have to be careful when you walk into those properties about the neglect that went on, or even some sabotage from the people that knew they were going to be foreclosed on.

CHERYL PETERSON: Or even potential like people who have been squatters in the property if the property wasn't secured. I mean, there's numerous issues that could potentially arise if you purchase a foreclosed property. So just beware.

KERRI MILLER: On the other side of this, from Philip in Minneapolis, who says, I'm 26 years old. I'd like to purchase a home in the next five years. What should I be doing now? What can I expect when I want to purchase? What would you be advising someone like that?

CHERYL PETERSON: Well, number one, with the Minnesota Homeownership Center and our network of counselors, there's actually pre-purchase counselors, as well as foreclosure counselors. And so if you're looking to buy a home, I would definitely suggest that you get in touch with a pre-purchase counselor, sit down, pull your credit, look at your current income, and then come up with a plan to see what's going to be affordable to you, especially if you're a first-time home buyer. There's actually great products that are out there to help you purchase a home eventually.

KERRI MILLER: OK. To the phones, to Julie in Woodbury. Hi, Julie.

JULIE: Well, hi. Good morning, gals. I'm a real estate agent in Woodbury, and I find myself thinking about the next wave of foreclosures that might be coming along and watching the interest rates dropping. And the folks that wander into work on refinances in our area often find that they're not able to do that for the reason that we're all aware of, that they don't have adequate equity in their homes, so they can't do the refi. But yet the folks that had previously done FHA mortgages, if they weren't conventional mortgages, if they were FHA, they find that they are able to refinance with their current mortgage balance.

They don't require an appraisal. They simply require that they qualify again in terms of income and credit. So those folks are all able to get the lower mortgages. Their problem is for a large part solved. My question to you is, do you think there's any chance that the conventional lenders might consider a similar program and allow everyone who has an upside down mortgage but qualifies in all other ways to go ahead and refi and solve their problems?

KERRI MILLER: OK, good question. Do you know, Cheryl?

CHERYL PETERSON: That's not something that I know a whole lot about. I would say that I would hope conventional lenders will actually start to do that. There are a couple of things that a person in that situation could actually do. They could try to find some other funding to put on as a second deferred loan in order to allow the financing to go through. The other thing is, I mean, homeowners could directly contact their lender to see if they would be willing to allow a short payoff and allow the refinance to go through.

And with the Hope for Homeowners product, lenders actually have to go down to 90% loan to value in order to allow that loan to go through. So I'm hopeful that more lenders are going to start being willing to do that.

KERRI MILLER: Cheryl, is it possible that-- again, we have not seen the specific details of the president's plan on this, but is it possible that organizations like yours will get a piece of some of this 50 billion, knowing that you're providing these services to people who are facing foreclosure?

CHERYL PETERSON: From what I've heard, I haven't heard anything about any direct assistance to Foreclosure Prevention programs. But in general, I mean, if there are direct subsidies that are going to banks to encourage modifications, it's going to help our program tremendously.

KERRI MILLER: OK. Websites that people can go to to get information about this.

CHERYL PETERSON: Well, you can actually go to our website. So our program, we serve the City of Minneapolis, and it's

Or you can also contact the Minnesota Homeownership Center, and I believe their website is just

Or once again, their phone number is 651-659-9336.

And our phone number for our program is 612-331-4090, extension 3.

KERRI MILLER: And we'll link to our Mid-Morning page at Good to have you. Thanks for fielding so many questions so concisely. We appreciate it.


KERRI MILLER: Cheryl Peterson, manager of the Foreclosure Prevention program at Twin Cities Habitat for Humanity. Again, more information on our website on the Mid-Morning at If you're taking a look at the Mid-Morning page, you'll see that our next guest next hour is Azar Nafisi, the Iranian writer who wrote that terrific, one of my favorite memoirs ever called Reading Lolita in Tehran. She's out with a wonderful new memoir about her experience and growing up in Tehran, the relationship between her parents, her decision to leave Iran and come to the United States for education. It's terrific.

One of the best memoirs I've read in a long time. It's called Things I've Been Silent About. And she'll be with us in just a couple of minutes here at 10 o'clock to talk to us about it. Tomorrow, two big hours on books. Well, what could be better. And I hope you'll join in. I know we have an audience full of book lovers. So that's Thursday at 9:00 and 10:00. This is Mid-Morning.

SPEAKER 1: Programming is supported by the Shakopee Mdewakanton Sioux Community. Since 2004, donating 199 automatic external defibrillators to the Minnesota State Patrol. Information on requesting an AED for your organization is at

SPEAKER 2: Support for this program comes from the Women's Foundation of Minnesota, a Community Foundation growing equality for women and girls through philanthropy, grantmaking, research, and advocacy. When women and girls move forward, the world moves with them.

KERRI MILLER: And you're listening to Minnesota Public Radio.

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