WASHINGTON, May 13 (Reuters) - The federal government is pushing to eradicate a long-standing symbol of Detroit's massive economic deterioration: the abandoned house.
On Tuesday, the regulator of government-controlled Fannie Mae and Freddie Mac announced a pilot program that will begin in coming weeks in Detroit to keep families in their current homes through loan modifications, match distressed properties with non-profit organizations for resales and assist in building demolition.
Federal Housing Finance Agency Director Mel Watt said borrowers who owe more than their home's market value could see "deeper loan modifications" than currently available through a program for refinancing loans owned or guaranteed by Fannie Mae or Freddie Mac.
Severely delinquent loans may be transferred to non-profits to find alternatives to foreclosure and non-profits could buy foreclosed properties or take them as donations, as well, according to a fact sheet.
Years of steep declines in the city's employment and population combined with the national housing crisis to turn Detroit into a near ghost town of empty homes and vacant lots. Many homeowners in the city are "underwater" on mortgages, meaning they owe more than their houses are worth.
Now as the city prepares to exit the largest municipal bankruptcy in U.S. history, it is working to stabilize its housing market.
Currently Las Vegas, Jacksonville, Orlando, Chicago and Tampa all have higher rates of underwater mortgages than Detroit, according to the Haas Institute at the University of California at Berkeley. At the same time, bank-owned foreclosures were down 51.9 percent in March from the same month in 2012, according to RealtyTrac.
Nonetheless, 28 percent of owner-occupied homes in Detroit have mortgages in negative equity compared to 19 percent for the United States as a whole, according to Zillow.
Representative John Conyers, a Democrat from Michigan, quickly responded to the FHFA announcement with a letter to Watt asking that Freddie Mac and Fannie Mae go further.
Conyers requested a six-month moratorium on foreclosures of mortgages where borrowers had been current on their loan payments before Detroit started its bankruptcy proceedings last summer.
"While FHFA actions including a short-term moratorium on foreclosures and longer-term loan modifications would not be a panacea, they would go a long way toward stabilizing the city's housing market, which would, in turn, facilitate the rebuilding of the tax base, easing the city's persistent cash flow problems," Conyers wrote.
As the city's state-appointed emergency manager lobbies the state legislature this week for help in exiting bankruptcy, Detroit's political leaders are expanding an online housing auction system.
On Monday Mayor Mike Duggan announced Detroit would increase the number of homes on its auction web site each week to 14 from five, after the first auction last week met strong demand. The houses in that auction, which were each abandoned for at least three years, fetched bids ranging from $30,000 to $42,100, he said.
The city aims to sell 400 vacant homes by the end of 2014, according to City Council President Brenda Jones.
(Reporting by Lisa Lambert in Washington; Additional reporting by Hilary Russ in New York; Editing by Cynthia Osterman)