Chicago will be the second city for the federal government’s Neighborhood Stabilization Initiative, Mel Watt, director of the Federal Housing Finance Agency, announced Tuesday.
The pilot program, announced for Detroit in May, is designed to help repair communities hard hit by the housing crisis and to stem additional foreclosures.
For homeowners in select neighborhoods who are at risk of losing their properties, it offers loan modifications, some of which carry principal reductions. Post-foreclosure, its goal is to quickly move Fannie Mae and Freddie Mac-held properties off the agencies’ books and into nonprofits’ hands for redevelopment.
Watt announced Chicago’s selection for the program while visiting the city to promote a 5-year-old effort, the Home Affordable Refinance Program, which helps underwater homeowners refinance their mortgages with a lower interest rate.
The stabilization program will be different in Chicago than in Detroit, because the residential flight that has gone on there calls more for demolition than property preservation, according to Watt. “People are not in flight from Chicago,” he said. “We want to stabilize the community.”
Armed with a list of ZIP codes and census tracts where it has properties, the agency and the National Community Stabilization Trust, a nonprofit that works in the housing sector, has just begun the process of identifying neighborhoods and properties. It will not be a citywide effort, and not all nonprofits will get to participate.
“I think that every organization should have a chance to prove they can do it,” Dawn Stockmo, community development manager of the stabilization trust in Chicago, said after the meeting. “Part of it is making sure these organizations’ eyes aren’t bigger than what they can do.”
While encouraging local housing and community groups to spread the word about the government’s refinance program, Watts said HARP has lost traction because consumers think it’s a scam and too good to be true.
“We are down to the people who don’t believe this is a credible program,” Watt said in a meeting at a Chicago Public Library branch in the city’s Longwood Manor neighborhood. “We’ve got approximately $72 million that we’d like to give away in this metropolitan area. People won’t come in and say I want that money.”
On average, HARP refinancings are lowering mortgage payments by $191 a month.
Officials said focus groups showed too any people are wary, having been educated about the scams that proliferated during the housing crisis.
Chicago was selected as the first of several stops for Watt as he crosses the country to promote HARP because more than 36,000 Chicago-area homeowners may qualify for the program, the most of any metropolitan area, according to agency criteria. The local housing market has been slower to recover from the housing crash than other markets and, as a result, homeowners who are current on their loan payments but owe more on their mortgages than the value of the property are unable to qualify for traditional loan refinancings and obtain today’s lower mortgage rates.
Those refinancings are possible under HARP, but the program only applies to Fannie Mae and Freddie Mac-backed mortgages. While changes made in 2012 expanded the number of potential participants, the number of refinancings has dropped nationally, to almost 20,000 loans in April, from almost 107,000 in April 2013, according to the finance agency report.
Housing experts say sluggishness in the program is caused by a number of factors, including homeowners who are tired of paperwork snarls tied to federal programs or those unaware of the program. HUD-approved housing counselors largely have dealt with homeowners in default who need loan modifications and have had little spare time to talk up HARP.
Watt did not announce any extension of HARP, which is set to end in December 2015, but the need for outreach goes beyond the time frame. Officials noted that as fixed-rate mortgages rise there is less incentive to apply for the program because the amount of payment reduction will shrink.
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