States offer foreclosure rescue loans
By Marcie Geffner • Bankrate.com

Homeowners who need to refinance a burdensome mortgage may be heartened to hear that more U.S. states may soon offer home loan refinancing programs similar to those already available from the federal government and at least nine states. The existing programs are limited in scope, but do give some homeowners another option to avoid foreclosure.

So far, Connecticut, Delaware, Maryland, Massachusetts, Michigan, New Jersey, New York, Ohio and Pennsylvania have set up refinancing programs, according to "Defaulting on the Dream: States Respond to America's Foreclosure Crisis," a study published by the Pew Center on the States, a research organization in Washington, D.C. Collectively, these states have committed at least $450 million to help homeowners refinance loans they couldn't afford or take out short-term emergency loans to tide themselves over during temporary financial difficulties. Use this map to find your own state's housing authority for more information.

States help homeowners turn ARMs into fixed-rate mortgages

State refinancing programs typically:

• Weigh whether the homeowner's existing mortgage is or seems likely to become a financial hardship. • Allow homeowners to refinance an interest-only or adjustable-rate mortgage, known as an ARM, into a 30-year fixed-rate mortgage. • Require homeowner counseling, in part because the federal government has upped its grants for such programs. • Require the homeowner to share any future financial gain on the sale of the home with the government agency through an equity-sharing or home value appreciation recapture requirement. • Tend to be targeted toward people of modest means. • Tend to be restricted to low- or moderately priced homes. • Tend to be predicated on the presumption that the homeowner has some ability to afford a new mortgage.

Here are some of the specific requirements of three state refinancing programs, according to the state housing finance agencies' Web sites:

1. Ohio's Opportunity Loan Refinance Program offers a 30-year fixed-rate mortgage to replace an existing interest-only, high-interest rate or adjustable-rate loan up to 100 percent of the home's current value. Household income is limited to 125 percent of the median gross income in the county where the homeowner lives. Four hours of homeownership counseling is required. Eligible properties include detached houses, condominiums and townhomes. An optional 20-year fixed-rate second mortgage can be used to pay closing costs, late fees or prepayment penalties on an existing mortgage.

2. Pennsylvania's Refinance to an Affordable Loan (REAL) Program also offers a 30-year fixed-rate mortgage up to 100 percent of the home's value. Homeowners must have a credit score of at least 620 or an acceptable credit history and no more than two 30-day late mortgage payments within the last 12 months and after a rate or payment adjustment. The new loan can be used to pay off subordinate mortgages, prepayment penalties, delinquent property taxes and closing costs that occurred within 12 months after the mortgage payment adjustment.

3. Michigan has two programs: Assist Refinance Program and Rescue Refinance Program. Both are open to homeowners who need to replace an ARM or fixed-rate mortgage that has an unaffordably high interest rate. Both programs offer a 30-year fixed-rate mortgage and require a minimum credit score and homeowner education. Annual household income must be less than $108,000 for the Assist Refinance Program or within federal and state limits for the Rescue Refinance Program. The Rescue program accepts borrowers who have made up to three 30-day late payments on their existing mortgage.

State housing agencies exist to support affordable housing, but that doesn't necessarily mean their programs can or should rescue people in the most dire of circumstances, explains Garth Rieman, director of housing advocacy and strategic initiatives at the National Council of State Housing Agencies in Washington, D.C.