The Rhode Island Housing and Mortgage Finance Corporation’s board of commissioners meets yesterday to discuss foreclosures.

The Providence Journal / Mary Murphy

PROVIDENCE — The state housing agency’s board of directors yesterday approved a plan to expand counseling services and offer a new loan product to Rhode Island borrowers who are unable to pay their mortgages.

Rhode Island Housing next month will open a “Help Center” at 70 Washington St., next door to its main office, staffed by eight housing counselors who will work with homeowners who may face foreclosure.

The counselors will also screen borrowers who may be eligible for “home saver loans,” to be given later this year. The loans will enable eligible homeowners to refinance up to 100 percent of their houses’ value at more favorable terms than what is generally available through private-sector lenders, said Rhode Island Housing’s executive director, Richard Godfrey.

“We don’t want to … create false expectations,” Godfrey said. “We’re guessing 1 in 10 people who call for help” will qualify. “The other 9 out of 10,” he said, will be offered counseling and assistance in finding rental housing.

The stepped-up effort to help homeowners in financial trouble comes in the midst of a nationwide mortgage crisis that is driving up foreclosures in Rhode Island. The state’s foreclosure rate during the second quarter of this year was the highest in New England and above the national average, according to the Federal Reserve Bank of Boston. The highest foreclosure rates are among risky “subprime” mortgages, generally given to borrowers with spotty credit.

Last month, of the 270 houses in Rhode Island advertised for foreclosure sale, 22 percent were bought within the last year or two, and 10 percent were bought less than 12 months earlier, according to data provided by the agency from The Warren Group, a real estate research firm in Boston. About 17 percent owned their houses for more than six years.

“The odds are the longer people have had their existing mortgage,” said Godfrey, “the more likely they will be able to refinance.”

The “home saver loans,” as the resolution approved by the board yesterday calls them, will offer up to $374,000 for single-family houses and condos, and up to $400,000 for two-family houses, according to Godfrey. The agency will also offer secondary loans for up to 10 percent of the house’s value to cover closing costs.

To be eligible to apply, borrowers must live in the houses they own and meet the federal government’s definition of low to moderate income, Godfrey said. The eligibility criteria would probably exclude homeowners who have significant debt beyond their mortgage, he said, or whose current mortgage exceeds the value of their house.

“The idea of the new program is a very close cousin to the First Homes program,” which offers qualified first-time buyers low-rate loans, said Rhode Island Housing’s chief financial officer, Thomas F. Hogg. The “majority” of the first-time buyer loans, he said, are for 90 percent of the house’s value, plus up to 5 percent of the loan’s value to cover closing costs and property taxes.

The “home saver loans” expand the lending criteria so that borrowers who qualify can get a loan for up to 100 percent of the house’s value, Hogg said, plus a separate loan for up to 10 percent of value to cover closing costs and property taxes.

State housing officials have been discussing the possibility of issuing the home saver loans through mortgage giant Fannie Mae, Godfrey said, but nothing has been finalized. The agency also regularly issues taxable bonds, as authorized under its charter, he said, which could be used to finance these new loans.

Rhode Island Housing has no limit on the amount of these loans it would be able to issue, but Godfrey said the agency “could be doing $5 million to $10 million a month.” That would mean the new program could be as large as its first-time buyer program.

“The private sector tries to maximize their fees,” Godfrey said. “Rhode Island Housing tries to minimize their fees because their mission is to serve Rhode Island. It’s the difference between a for-profit entity and an entity with a public purpose.”

Some homeowners facing foreclosure took out “subprime” loans for 100 percent of their house’s value. Those loans generally carry high interest rates and unfavorable terms. As house prices have declined, owners who just a year or two ago bought houses with those zero-down loans now find their houses are worth less than the amount of their loans, or “under water.”

Those people, Godfrey said, are not expected to qualify to refinance and will instead be offered counseling, including referrals to legal services, and assistance in finding other living arrangements.

larditi@projo.com