Protecting homeowners from the unexpected

Thomas Mackey has a nice little three-bedroom house on a golf course in Carolina Beach, N.C.

Last fall, when he refinanced his mortgage, Mackey, 61, had a good job as director of food services at an assisted-living facility. When his lender told him the loan came with a complimentary mortgage protection plan, Mackey never gave it a second thought.

“I didn’t even pay attention to it because I never thought I’d have to use it,” he recalls.

Three months later, Mackey lost his job. But he didn’t lose his house because of that mortgage assurance program backed by the Rainy Day Foundation, a non-profit group headquartered in Washington, D.C.

The foundation made Mackey’s next four $1,400 mortgage payments and is likely to make two more.

“It’s unbelievable,” he says. “I wouldn’t have my house anymore if it weren’t for them.”

Chances are you never heard of the Rainy Day Foundation.

Until a few weeks ago, neither had I. If you’re ready to buy a house or refinance your mortgage, you should know about the foundation.

“Our goal is to help homeowners maintain homeownership,” says CEO Rick Del Sontro.

The Rainy Day Foundation rolled out its Homeowner Education and Loan Protection program (HELP) about 19 months ago. HELP is only available when you buy a home or refinance a mortgage. You cannot enroll on your own. The program is paid for by participating lenders, builders or real estate firms.

More than 125 companies across the country have partnered with the foundation. Most are local or regional lenders. But a number of big banks, including Wells Fargo, SunTrust, Flagstar and National City, also take part.

Main Street Homes, a major builder in Austin and San Antonio, enrolls every single buyer in the HELP program.

How HELP works
The program has three major components: counseling, job loss protection and grants for emergency mortgage payments.

Rainy Day counselors help buyers through the critical first two years of homeownership. That’s when they are most likely to bust the budget on furniture, appliances and other things for their new home.

A counselor calls each month (for at least the first 6 months) to answer questions, make sure their clients are living within their budget and saving a little for a rainy day. The goal is to tackle any problems early on.

“We want them to know that if something happens we are there for them and they can fall back on us,” Del Sontro says.

The HELP program also includes job loss protection. That’s what’s paying Thomas Mackey’s mortgage. It kicks in 60 days after closing and lasts for two years.

If you lose your job or your income drops for some reason during those 24 months, the Rainy Day Foundation will make your house payments – up to $1,800 per month – for up to six months. This is a grant that never has to be repaid.

Matthew Whilden, 24, recently bought a new house in Kirkland, Wash. He knew it was a great time to buy. Even so, the idea of making those monthly mortgage payments made him nervous.

Whilden’s mortgage broker, Cobalt Mortgage, told him about the Rainy Day protection plan that comes with all of its FHA loans.

“I probably would have gone through with the purchase anyway,” Whilden tells me, “but I wouldn't feel as good about it.”

Cobalt Mortgage President Keith Tibbles, is a big believer in the program.

"It doesn't protect them indefinitely,” he stresses, “but it protects them during a period of time where they may have to go look for a different job.”

According to Dean Bloxom, president of Arizona-based imortgage, fear about the economy “remains one of the major stumbling blocks” for many potential homeowners, even if their own job is not at risk. 

“This program gives them some peace of mind that they can make a good long-term decision without worry.”

HELP is on the way
For most of us, it’s hard to imagine what it would be like to lose our house. That nearly happened to Liz Zirnheld, 28, and Steve Ernspiker, 32, of Mount Washington, Ky.

After Ernspiker lost his job, the couple missed several mortgage payments and the bank was getting ready to foreclose on them.

“It was a real bad time, depressing and sad and very hard on both of us,” Zirnheld remembers.

The foundation approved the couple’s application for an emergency mortgage payment grant.

“Without the Rainy Day Foundation we would not be living here anymore,” Zirnheld says. “We would be one of the statistics.”

The $3,000 got them current on their payments and stopped the foreclosure. They also received delinquency counseling and help creating a family budget.

“I am forever indebted to them,” Zirnheld says. “We hit a terrible bump in the road and they got us through it.”

A word of caution
Greg McBride, chief financial analyst at advises potential buyers to be realistic about what a program like this can do.

"While a mortgage protection program can provide valuable peace of mind, it's not to be used in lieu of an adequate savings cushion or to buy a home before you're truly ready," he advises.

McBride says millions of people have been out of work for more than 6 months during this recession. That’s longer than the Rainy Day Foundation will pay your mortgage.