Realty Check

New numbers today from the alliance formed by Treasury Secretary Henry Paulson to save troubled borrowers.

The “Hope Now Alliance,” which is comprised of mortgage servicers, counselors and investors, announced it helped provide workouts to about 183,000 borrowers in April, up 23,000 from the month before.

That’s a new record, and the total tally since the project began last July is now 1.6 million.

This is all good. I’m not saying it’s not. But is it fantastic? No. Even the CEO of the Financial Services Roundtable, former Congressman Steve Bartlett, who is helping to shepherd Hope Now, says he wishes it were more.

The trouble is that of all those “workouts” 106,000 were repayment plans, while approximately 77,000 were loan modifications. Critics argue that repayment plans don’t always get borrowers out of the total soup, especially if their adjustable-rate loans haven’t even reset yet. Many repayment plans simply put past payments onto the back end of the loans, putting off the agony. But I will give Bartlett his say:

"There is a misconception out there fomented by the voices of darkness, or at least misunderstanding, that somehow we're doing these temporary. They're not. Every plan is based on the ability of the borrower to repay on a permanent basis."

Now for a dose of reality in the Realty Check: Since July, Hope Now has, it claims, helped 1.6 million borrowers avoid foreclosure. According to the Mortgage Bankers Association (part of the Hope Now alliance), in the fourth quarter of 2007 (the latest stats) 381,000 foreclosures were started and 2,676,000 loans were past due. We can only expect the numbers in the first quarter of this year to be worse.

Something else Bartlett said that surprised me; that in these modifications lenders were reluctant to write down principle on the loans. “Lenders are willing to write down the principle, but I have to tell you that’s real money, so that’s their last resort,” he admits.

And by the way, writing down principle is the foundation of the plan in Congress right now to help borrowers. The FHA would back 300 billion dollars worth of new loans if and only if lenders write down the principle.

Bartlett went on to say: “We can say trippingly off our tongue easily well just write down the principle, but if it's your principal that means you just gave up 200 thousand dollars, 300 thousand dollars. So that is a last resort because once you start doing that you dry up the mortgage market for everybody for the future unless you only do it in relatively uncommon circumstances.”

‘Nuff said.

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