Members of the Independent Mortgage Servicers Coalition are asking the Federal Reserve, the Treasury and Congress for financial assistance in their efforts to help contain bank repo homes.

Independent mortgage servicers are the firms collecting and distributing payments on over $700 billion in home loans taken out during the boom years. The coalition, led by California-based Carrington Mortgage Services, includes Ocwen Financial Corporation and the Nationstar Mortgage unit of Fortress Investment Group.

These mortgage firms are following up on their request for federal help after the Treasury Department obtained a pledge from the country’s 25 mortgage banks to modify at least 500,000 troubled home loans by November 1 to help contain bank repo homes.

The independent servicers explained that if delinquent borrowers are given more time to have their loans modified, the servicers carry the increased costs of paying bond investors according to investment contracts.

According to Bruce Rose, general partner and CEO of Carrington Mortgage’s parent company Carrington Capital Management LLC, the Treasury mandate of loan modifications to contain bank repo homes is largely an unfunded federal government mandate.

Rose explained that the $1,000 cash incentive given to servicers for every loan modification done and another $1,000 per year for 3 years if the homeowner keeps up with payments are not enough to cover the costs of financing payments to investors.

The Term Asset-Backed Securities Loan Facility, which was launched by the Fed to help servicers, has failed and has even increased financing costs, according to Rose.

This month, according to Rose, Standard & Poor’s worsened the situation of servicers when it reduced the value of assets involved in TALF-eligible bonds.

As explained by Rose, to reduce borrowing costs, servicers need to foreclose faster and not more slowly as demanded by the Obama administration’s program to contain bank repo homes.

Rose warned that unless independent mortgage servicers are helped by the federal government to improve their liquidity, they could not help achieve the objective of modifying 500,000 troubled home loans by November 1.

Nonetheless, Rose said that Carrington has already modified around 45 percent of its loan servicing portfolio of subprime home loans taken out from 2005 through 2007.

At the meeting between Treasury Department officials and top bank executives, at least 4 executives of independent mortgage servicers attended, including Carrington general partner Rose. Rose reiterated that the federal government needs to help them solve their liquidity problem so they can help curb the rising number of bank repo homes.

Florida’s budget cuts have affected Alachua County’s foreclosed house buying program. According to Alachua County housing manager Tom Webster, the total allocation received by the county from the State Housing Initiatives Partnership Program (SHIP) for 2009-2010 will be reduced to $378,849. Previous fiscal year saw the county receiving $2.5 million under SHIP.

The drastic reduction in the SHIP funding is attributed to revenue shortfalls. The budget cut means a reduction in the number of low-income and middle-income county residents who may receive financial assistance for new home down payment or foreclosed house repairs.

Webster said that the budget cut will have a major impact on the home buying program. He said that previously, the program served as many as 80 homeowners annually. Now, they are expected to serve only about 20 homeowners.

According to industry experts, a drastic decline in Florida’s tax revenue due to the economic downturn has led to budget cuts in both state and local programs. Webster explained that the SHIP funds are usually used as leverage for the state to obtain other federal grants. This means that the overall impact would be greater than the loss of SHIP funding.

Alachua County and Gainesville operate their own SHIP program which aims to buy foreclosed house. For the current budget year, both counties received an equal share of the total SHIP money amounting to $2.5 million.

Meanwhile, out of the $1.2 million allocated to the Alachua County, nearly $800,000 was used to fund down payment and renovation costs for first-time homebuyers. Home repair assistance program received around $250,000. The funds will also be used for special-needs and foreclosure intervention programs.

On the other hand, Gainesville city received about $1.3 million for the fiscal year 2008-2009. About 10 percent were allotted to down payment assistance. And remaining funds from last year will be redirected to fund other programs, including foreclosure intervention and home repair assistance.

County residents who want to qualify for the assistance program must meet certain income requirements.

Florida Senator Steve Oelrich said that drastic cuts have to be taken from various programs to balance the state budget. But industry experts are confident that state legislators would increase the SHIP funding as soon as the money comes in.

Webster said that for the fiscal year 2009-2010, the SHIP will be revised to use funds for deposit assistance only in partnership with a federal tax credit for buying a foreclosed house.

Potential buyers of repossessed home for sale in Washington D.C and Virginia may avail of various down payment assistance initiatives as part of federal as well as local government programs geared towards improving the real estate market.

Industry experts said that many of these assistance programs to buy foreclosed home for sale have time constraints. They said that the programs are funded by the federal government and last only until the funds run out. They cited Washington D.C. Neighborhood Stabilization Program which ran out of money already.

The Obama Administration, in its economic stimulus package, offered an $8,000 federal tax credit to first-time homebuyers. In support of the initiative, the FHA allowed homebuyers to use loan mechanisms to get hold of the tax credit to be used as deposits or closing cost payments on loans insured by the FHA.

To encourage buying of foreclosed home for sale, the Housing Development Authority of Virginia established the Homebuyer Tax Credit Plus initiative last month. The initiative provides fixed-rate mortgages that are affordable and a second loan to be used as deposit and closing cost payments. For the second housing loan, no interest or even payment are required during year one.

The second housing loan offers a maximum loan amount of 5% of the total sales price that has no provision for cash back. The closing of the deal must be done before the stipulated expiration date.

Meanwhile, Prince William County, which has the most number of repossessed home for sale in Virginia, launched its down payment initiative that offers as much as $30,000 to qualified borrowers. The money can be used by borrowers to shoulder cost for maintenance and repair after they have purchased foreclosed properties.

The Down Payment on Your Dream program was developed since buyers could often afford to buy a house but do not have the means to improve or make repairs badly needed on some repossessed homes.

Buyers who may qualify for the program should have a credit score of not less than 620. They may avail of loans with deferred payments and no interest. Also, if they decide to stay in the property for at least 10 years, no repayment of the loan would be required.

The Washington D.C. Employer Assisted Housing Program provides down payment assistance to employees who are buying a foreclosed home for sale for the first time. They may avail of deferred loans with a maximum amount of $10,000.

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