Pennsylvania Gives Homeowners Extra Help

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States are getting increasingly creative about aiding homeowners who can’t afford to pay their mortgages. Pennsylvania is at the top if the list — it will lend you $60,000 to pay your mortgage if you lose your job. Will other local governments follow the Keystone state’s lead?

For starters, the Pennsylvania plan isn’t a newbie. Since 1984, the Pennsylvania Homeowners’ Emergency Mortgage Assistance Program has been the law of the land for millions of residents. Originally, the law was passed to assist beleaguered steel workers and coal miners in the state’s western and northeastern regions, and the thousands of Philadelphia Naval Yard hardhats who were squeezed out of jobs during the 1970s and 80s.

But the Great Recession has resurrected the long dormant program. According to the Pennsylvania HEMAP Web site, reduced bank lending has translated into a 22% cut in state-wide new loan approvals across the state since the recession stated. That’s down from 40% in the late 1980s, after the economy picked back up again.

Candidates for the “bailout” are approved only after a rigorous review — a formula that the state says relies on insufficient income. About $25 million was approved for troubled homeowners in 1984, the state reports. That line of credit had dwindled to $9 million in 2009. But as of 2006, funding was as high as $16.9 million, leading state legislators to bump up HEMAP funding for 2010 to help statewide homeowners deal with the lousy economy.

Structurally, HEMAP operates much like a bank loan. Participating homeowners facing financial hardship can get one-time loans that enable them to make good on any mortgage payment shortfalls. The HEMAP program does allow monthly payments for up to 36 months also. Once approved, the money goes directly from the state to the mortgage servicer. Once the homeowner recovers financially, the state sets up a payment program to pay the loan back.

Certainly, the demand is there. According to Commonwealth of Pennsylvania figures, homeowner state foreclosures have tripled since 2005. To meet that demand, the state program bypasses the loan modification formula that the federal government uses in its home loan aid efforts. Instead, Pennsylvania’s HEMAP program directs aid to the jobless, the health afflicted and other homeowners suffering from a short-term financial hardship.

Maybe that’s why the program’s default rate is so low. According to the state, only 25% of all HEMAP participants fail to repay their home loans — that’s a significantly lower number than the national average for loan modification defaults.

Other states, like Delaware, Texas and North Carolina have taken notice, and have initiated their own hardship home loan programs. Washington, D.C., is also lining up similar funding — Rep. Barney Frank (D-Mass.) has proposed taking cash out of the Troubled Asset Relief Program and plugging it into a federal version of the Pennsylvania plan.

By addressing the realities of the economic crisis — the loss of a job, a debilitating health issue or other short-term financial calamity — Pennsylvania is putting taxpayer money to good use and keeping homeowners who have the capacity to repay the loan in their own homes.

That not only stabilizes communities in the Keystone state, it sends a message to struggling homeowners that if banks won’t help, their state government will.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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