‘HOPE for Homeowners’ Program Appears Hopeless
In its first two weeks of existence, the Federal Housing Authority’s HOPE for Homeowners program, meant to help as many as 400,000 homeowners avoid foreclosure, has fielded a grand total of 42 applications.
The program set aside $3.9 billion to help people in “neighborhoods hardest hit by foreclosures” renegotiate their loans, but as Rep. Steve LaTourette (R-OH) noted in yesterday’s congressional hearings on the financial crisis, the effort appears to have fallen flat and now expects to receive only a fraction of the applications it was designed to manage.
“The regulators are saying that by next fall, it will only be 20,000—far short of the 400,000 that we envisioned when we passed that legislation,” LaTourette said.
The program, launched by the Housing and Economic Recovery Act of 2008, would allow homeowners who took out mortgages before the beginning of 2008 and can’t afford their loans to apply for a new 30-year mortgage – up to a value of $550,440 – backed by the Federal Housing Administration.
The program is a marked exception to the impasse that has emerged among Bush officials on the question of what, if anything, to do about troubled mortgages. Sheila Bair, head of the Federal Deposit Insurance Corporation, has called for the Treasury Department to use part of the $700 billion bailout to buy up distressed loans, but Treasury has so far resisted her calls.
Yesterday, RealityTrac reported that foreclosure rates leapt 25 percent from this period last year – a figure that would suggest people would be eager for a program that helped them get a modified, government-backed mortgage.
We’ve contacted Hope for Homeowners to ask them why the numbers are so low. We’ll let you know when we hear back.
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1 comments
Chris Cyr
Nov. 14, 2008, 2:29 p.m.
Please someone, have Barney Frank, or Christopher Dodd, call me. Here is how to create an atmosphere of ready able and willing lenders to participate in the Hope for Homeowners mortgage loan, insured by the Federal Housing Authority.
The first thing that needs to happen is to take away the fear of loss from the lenders. Make the lenders aware this is their best exit strategy, for loans in or about to be in trouble. The reason being is if the lender is unwilling to grant a principal write down to bring the New Hope Loan, under the 90% loan to value, required and instead opts for the short sale, or foreclosure approach, the process will be more timely, more expensive and the lender will eventually sell the property, for well under the 90%. We call that the easy way or the hard way, the results are the same.
The lenders actually need some hand holding and comforting. I am not kidding here. The lenders need to know that the wool is not being pulled over their eyes. No one is trying to take advantage of anybody here. The debt to income ratios, for the borrowers speaks for itself. If they can not afford to pay, they won’t.
Now here is the best part. What type of a borrower will a lender wind up with after restructuring into a Hope for Homeowners loan? The credit risk here is fantastic. It is the sun, moon, and stars all lined up. The lender now has a secured asset, with an equity position in a market that is poised to climb and give them more equity. The lender has a borrower who has a low debt to income ratio when compared with recent lending practices. Not to mention the income is fully documented! And last but not least you have a borrower who has very little competing debt. The reasons for this are unfortunate indeed, but like any risk assessment it is a factor. These are loans that would make any lenders portfolio shine. And the likelihood of a quick churn is very low. Meaning you could retain the servicing or have a more profitable experience in the secondary market.
My thoughts for Barney and Chris are as follows: Legislation which would require lenders to honor a principal write down. There is a bankruptcy system here in the United States. If it becomes necessary to offer a similar process for these mortgages, than offer it. It would not be a bad idea to offer lenders an exchange for this write down. How about a fair division of future equity, with the Federal Housing Authority, when the home is sold. So in other words, if there is 100,000 equity 10 years down the road, FHA would receive 25,000, the participating lender would receive 25,000 and the borrower would receive 50,000.
One thing is for sure. We can thank God for living here in the United Sates, where we have both people like Mr. Frank, and Mr. Dodd, working for us and the ability to voice our opinions.
Chris Cyr
Direct Finance MA
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