Calif. median home price: January 2010: $287,440 (Source: C.A.R.)
Calif. highest median home price by C.A.R. region January 2010: Santa Barbara So. Coast $760,000(Source: C.A.R.)
Calif. lowest median home price by C.A.R. region January 2010: High Desert $124,480 (Source: C.A.R.)
Calif. First-time Buyer Affordability Index - Fourth Quarter 2009: 64 percent (Source: C.A.R.)
Mortgage rates - week ending 2/25/10 30-yr. fixed: 5.05 Fees/points: 0.7% 15-yr. fixed: 4.40% Fees/points: 0.7% 1-yr. adjustable: 4.15% Fees/points: 0.6% (Source: Freddie Mac)

WASHINGTON (AP) — The government is giving homeowners another year to refinance their loans under a little-used program designed to help borrowers whose homes have plummeted in value.

The Obama administration effort, known as Home Affordable Refinance Program, had been scheduled to end on June 10 but will now run out on June 30, 2011, the Federal Housing Finance Agency said Monday.

The program allows borrowers who owe up to 25 percent more than their homes are worth to refinance to lower interest rates.

It was originally projected to help 4 million to 5 million homeowners with loans owned or guaranteed by Fannie Mae and Freddie Mac. So far, it has helped around 220,000, according to the Treasury Department.

Two weeks before their Sunnyvale home was to be auctioned off on the courthouse steps, Sonia Leverman and her sons seized on a desperate David-vs.-Goliath strategy: They sued their lender.

Everything else the Levermans tried had already failed. By turning to the courts, they joined a fast-growing number of fearful and frustrated California home- owners who hope litigation will allow them to hold onto the American dream — maybe at a lower monthly mortgage cost, maybe just for a while longer until the inevitable foreclosure.

In the last five years, the number of foreclosure lawsuits filed in federal court in California has ballooned — like an exploding adjustable-rate mortgage — from only 29
statewide in 2005 to nearly 1,400 last year.

Many such lawsuits also are filed in state courts, which don't track the numbers or the outcomes.

The striking increase in suits against lenders reflects the difficulty many with underwater mortgages are having in getting loan modifications, either through the government program or the banks themselves.

But some experts say the lawsuits don't work as well as they did 18 months ago, and never were an easy bet in California.

Even if a lawsuit doesn't ultimately succeed, it can sometimes significantly delay the loss of a home. Some suits contend the lender reneged on a promise of a loan modification, as in the Levermans' case. Others argue lenders screwed up the foreclosure process. Among the most frequent claims: During the overheated housing boom, the bank did not properly disclose the terms of the loan, the borrower never really qualified, but got a loan anyhow.

If there are grounds for a lawsuit, 'it definitely buys time,' said Hayward attorney Glen L. Moss.

Yet judges are quicker to dismiss cases as they get more familiar with the complex laws, banks are more reluctant to settle them, and the federal court here is the only one in the nation that requires some homeowners to put up a portion of what they borrowed before certain lawsuits can be heard.

Attorneys familiar with the 4-inch-thick set of federal rules on lending also warn that fragile homeowners are easy prey for unscrupulous or ill-informed lawyers. California enacted an emergency law in October preventing attorneys from taking advance fees for loan modifications, but the State Bar is investigating more than 500 lawyers for loan modification fraud.

Some California Democratic legislators are trying to get a law passed that probably would reduce the number of lawsuits by requiring mediation between borrowers and lenders before a foreclosure can proceed.

California has the nation's fourth-highest foreclosure rate after Florida, Nevada and Arizona. Several other states have passed similar programs, including Nevada. But the bill faces strong opposition from mortgage bankers.

Legal battles

On a street of bland ranch houses just west of Highway 101, the Levermans' three-bedroom, $655,000 home stands out with its jaunty orange and terra cotta paint job and immaculate yard studded with animal figurines.

'For me, it's my palace even though it's old,'' said Leverman, who speaks little English.

To make the initial monthly payments of about $2,500, her husband and sons worked long hours as cooks. But in 2008, her husband lost his job and her sons' hours were cut back, just as the variable-rate mortgage payment shot up to $4,353.

The increase shocked Leverman, who'd signed the English-only documents without understanding the terms. The family then wasted $6,500 on three loan modification 'experts' who didn't accomplish anything.

The last straw was when Litton Loan Servicing refused to grant them a permanent loan modification, claiming their third trial payment was late — even though they had a Western Union receipt showing it arrived on time. An attorney for Litton did not respond to requests for comment.

The Levermans' frustrating experience is not unique, though banks insist they have modified thousands of loans. The latest data on Obama's loan modification program does show improvement. But Alan M. White, a professor at Valparaiso University School of Law, who specializes in foreclosures, said tough enforcement action is needed to spur more modifications.

The Levermans finally hired Los Gatos lawyer Wendell J. Jones, who filed suit in state court against Litton, alleging breach of contract. As a result, the family is back on track for a permanent modification, though they still will owe more than the house is now worth. If everything works out, Jones' services will cost $5,000. 'Only when I got involved and filed a lawsuit did the lender come to the table,' Jones said.

But even Jones warns the Levermans' success may be the exception, not the rule. Many homeowners who've filed suit remain in limbo.

Move delayed

To Aaron Liebelt, one of Moss' clients, that's enough for now. Liebelt, 36, and his girlfriend, Jessica Taylor, bought their four-bedroom house with a swimming pool in West San Jose in 2006 for $815,000. They made interest-only payments of $3,500 for two years, and were hoping to refinance, until he lost his job at a music store and his recording studio foundered.

Liebelt, who now works from 3 a.m. to 1 p.m. delivering bread, was about to be evicted when he hired Moss. The lender claimed he had defaulted on a repayment plan they negotiated, which the suit claims is not true. Now, the couple and Taylor's teenage children get to stay in the same house and school district until the matter is litigated — which Moss says could take anywhere from six months to two years. The couple is paying Moss about $3,000 a month.

'What is the worst that could happen — I'll lose the house?'' Liebelt said. 'I'm already in that position.'

McLean, VA – Freddie Mac (NYSE:FRE) and 13 national and local non-profit organizations today announced a pilot effort to convince discouraged delinquent borrowers to pursue mortgage workouts that can save their homes and steer clear of foreclosure.

Freddie Mac’s new Borrower Help Centers in Chicago, Phoenix, San Bernardino and Washington, DC are designed to provide free, confidential one-on-one “holistic” mortgage counseling to delinquent Freddie Mac borrowers. The company is also launching a separate Borrower Help Network offering similar counseling over the phone to targeted Freddie Mac borrowers across the nation.

Both efforts rely on non-profit organizations with strong reputations to contact and work with Freddie Mac borrowers who may be eligible for a modification but never called their lender or became frustrated or uncertain of the process and gave up trying.

“We know that fear and frustration are keeping thousands of borrowers from getting the help they’re eligible to receive,” says Ed Haldeman, Chief Executive Officer, Freddie Mac. “So we’re going to address the problem head-on by working together with nonprofit partners. These organizations are trusted and valued sources in their communities, and we believe they can make the difference in keeping families in their homes and out of foreclosure.”

Holistic financial counseling goes beyond mortgage issues and also includes an assessment of borrower debt and credit issues that could affect a borrower’s ability to stay current on a mortgage after a modification. Borrowers in some stage of foreclosure are 60 percent more likely to keep their homes than other borrowers, according to a recent study from NeighborWorks America.

Groups participating in the Borrower Help Center and Borrower Help Network include the National Urban League, National Council of La Raza (NCLR), HomeFree-USA, local Neighborhood Housing Services in Chicago, Phoenix, and Ontario, California, and other local community organizations.

“NCLR’s partnership with Freddie Mac on this program means that distressed minority homeowners can access effective, personalized housing counseling from trusted community organizations. This effort will strengthen our ability to replicate best practices and succeed in helping more Latino families stay in their homes,” said Janet Murguía, President and CEO of NCLR, the largest national Hispanic civil rights and advocacy organization in the United States.

'The National Urban League looks forward to working with Freddie Mac on this important project as we collectively seek to test enhancements to the home retention continuum that prioritize client counseling and best utilize trusted community groups in order to help more minority borrowers avoid unnecessary foreclosure,” states Marc H. Morial, President & CEO of the National Urban League. “The Borrower Help Network is a critical response to the housing crisis and its design is clearly linked to comprehensive and sustainable neighborhood stabilization, which remains the ultimate objective.'

In 2009 Freddie Mac helped nearly 250,000 borrowers avoid foreclosure through loan modifications, forbearance, repayment plans and other workouts, including modifications under Making Home Affordable. Freddie Mac accounts for nine percent of all seriously delinquent mortgages, but finances almost 23 percent of America’s residential mortgages.

Neighborhood Borrower Help Centers Open in Four Key Markets
The free Borrower Help Centers in Chicago, Phoenix, Washington, DC and California’s Inland Empire have already started contacting delinquent borrowers identified by Freddie Mac for appointments. In addition, delinquent borrowers who know Freddie Mac owns their mortgage can also schedule free appointments by contacting the Borrower Help Center in their community.

Counselors at each Borrower Help Center are trained to review Freddie Mac and Making Home Affordable workout requirements with their clients. Counselors will also provide one-on-one guidance to help borrowers apply for modifications, supply missing information or documents needed to move an application forward, and work with Home Retention Services, a wholly owned subsidiary of Stewart Lender Services, Inc., to help borrowers effectively connect with their servicers.

At the same time, the counselors will work with the borrowers on other outstanding debt and credit issues, such as credit card debts or auto loans, that may also be causing financial distress.

Borrower Help Centers in Chicago are being staffed by Neighborhood Housing Services of Chicago and the Latin United Community Housing Association (LUCHA), and in Phoenix by Neighborhood Housing Services of Phoenix and Chicanos Por La Causa. Neighborhood Partnership Housing Services in Ontario, CA and Home Free USA in Hyattsville, MD, a Washington, DC suburb have also opened Borrower Help Centers.

National Borrower Outreach Network Launched
In a parallel effort to reach distressed borrowers located outside of the initial target areas, Freddie Mac is launching a separate Borrower Help Network consisting of eight national and local non-profit organizations.

Together they are launching a national phone campaign to make contact with delinquent Freddie Mac borrowers who have stopped responding to their lenders. Counselors will provide free holistic counseling, and help borrowers explore and understand their mortgage modification options.

The Borrower Help Network also will work with Home Retention Services to connect borrowers with their servicers for a mortgage modification or other foreclosure alternative.

Participating organizations include the National Urban League and its chapters in Broward County, FL and Hampton Roads, VA, NCLR and NCLR Affiliate Network members – Southwest Housing Solutions in Detroit and New Economics for Women in Los Angeles. The Metroplex Economic Development Corporation in Dallas, Korean Churches for Community Development and Boat People SOS, which works with Vietnamese Americans through 15 branches across the country, are also participating in Freddie Mac’s Borrower Help Network. (For more information, visit freddiemac.com/avoidforeclosure)

The latest effort to scale back some tax deductions on mortgage interest, one of the nation's most-enduring tax breaks, is finding little support in Congress.

President Barack Obama's latest budget proposal, released in February, includes a provision that would shrink deductions for mortgage interest, real-estate taxes, charitable contributions and other items for married couples with annual incomes of more than $250,000, or individual filers earning more than $200,000. Under the proposal, such taxpayers would save 28 cents of tax liability for every $1 of mortgage interest or other eligible expenses, down from 35 cents now.

But the proposal has gained no traction in Congress so far. Members from both parties are concerned about how it would affect both the housing market and charitable contributions, says Matthew Beck, a spokesman for the Democratic majority on the House Ways and Means Committee.

The administration believes the proposal would reduce the deficit and 'distribute the cost of government more fairly among taxpayers of various income levels,' says a Treasury spokeswoman.

But lobbyists for the real-estate industry say scaling back the deduction would hurt demand for housing at a time when the market remains fragile. 'It seems very counterintuitive to impose this kind of pain on an industry that's already suffering more than any industry in America,' says Jerry Howard, chief executive of the National Association of Home Builders.

Lucien Salvant, spokesman for the National Association of Realtors, says the proposal 'amounts to a tax increase on an important group of homeowners and would rob buyers of the incentive to move up in the housing market.'

The Treasury rejects those arguments. 'This proposal is unlikely to have any real effect on the housing market since tax benefits are only one small part in determining the overall demand for high-end housing,' the Treasury spokeswoman says.

Congress has rejected numerous attempts over the years to scale back or eliminate this deduction, which has been available since the federal income tax was created in 1913. The deduction is often defended as a means of boosting homeownership.

Yet critics of the deduction say that, in practice, the deduction does little or nothing to expand homeownership.

Eric Toder, a fellow at the Urban-Brookings Tax Policy Center, a left-leaning Washington think tank, says that low- to moderate-income people—those who might have to stretch to afford a home—typically don't itemize deductions on their tax forms and so get no benefit from this tax break.

The main effect of the deduction, Mr. Toder says, is to lower the cost of borrowing for wealthier people, most of whom would own property in any case. The deduction also may have helped inflate the housing bubble by subsidizing mortgage borrowing, encouraging people to take on more debt than they otherwise would have.

In a 2007 report, the Urban-Brookings Tax Policy Center argued that the deduction drives up land and housing costs. It recommended replacing the deduction with a tax credit and subsidized savings program for first-time home buyers.

Under current law, taxpayers are allowed to take deductions from home-purchase mortgage loans with original balances of as much as $1 million, plus another $100,000 of home-equity borrowings. This debt can include loans used to buy second homes or even boats that have sleeping quarters, bathrooms and kitchens, says Gregory Rosica, a partner at the accounting firm Ernst & Young in Tampa.

The congressional Joint Committee on Taxation recently estimated that the mortgage-interest deduction this year will reduce tax revenue by about $104 billion. About 75% of those benefits go to people with incomes of more than $100,000 a year, a report from the tax committee found.

Mr. Rosica of Ernst & Young calculates that, for a typical taxpayer with total income of $500,000 and itemized deductions of $50,000, the scaled-back deductions would mean $5,000 of added tax liability. For a taxpayer with $1 million of income and $136,000 of itemized deductions, the added tax liability would be about $13,000, he says.

Write to James R. Hagerty at bob.hagerty@wsj.com