That $300 Billion Hope For Homeowners Isn’t Working

Gordon Banks

I’ve just seen the latest numbers on the recently launched government Hope for Homeowners program, and I’d call them laughable if the whole thing weren’t so blatantly sad.

Hope for Homeowners was launched Oct. 1 as part of the Housing and Economic Recovery Act signed into law on July 30,2008. Proponents used a Congressional Budget Office estimate of 400,000 homeowners that could be helped over three years. The latest projection was that 19,000 applications would be received in the first year.

The program works like this. A borrower in trouble contacts the lender, and the lender agrees to write down the principal to 90 percent of the current value of the property. They then get a new FHA insured loan. In return, when the borrower eventually sells the house, the government gets half the equity that is created after the new loan begins: in other words any appreciation. FHA will insure up to $300 billion in new loans.

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Well I doubt we’re all going to have to worry about that $300 billion. Here’s the reality: In the last two weeks, FHA received exactly 69 applications to the H4H program. Since the start of the program, a little over a month ago, it has received 111. Now I’m no mathematician, but that doesn’t exactly extrapolate out to 400,000 over three years or even 19,000 over one year or even over a few months. In fact, HUD took the projections out of the release.

Understand that these applications don’t come from troubled borrowers, they come from lenders, so the lender would have to have already agreed to the principal write-down. Yesterday, at a hearing before the House Financial Services Committee, several lenders said they were aggressively trying to help their troubled clients.

“Bank of America is leading the mortgage industry out of today’s challenging environment. We know that consumers who are experiencing financial challenges, but who ultimately have the ability and willing to repay their loans, often need our help to stay in their homes. We are ready to help them.”

And from JP Morgan : “We will work with families who want to save their homes but are struggling to make their payments.”

Now I realize many of these lenders are helping folks in-house, but the idea behind the H4H program was that all these lenders would flock to them in droves to get nice, clean, FHA-insured loans. The sticky point is the principal write-down. Word on the street is that the lenders either don’t see a better value in writing down principal as compared to foreclosing on the house, or the lenders can’t because they’re acting as servicers and the loans were sold off to investors, and the investors don’t allow the change.

I just wanted to put this out there, because a whole bunch of folks, including me, are scratching our collective heads trying to figure out how there could be so many public and private sector programs designed to save troubled borrowers, and yet the foreclosure numbers keep going up. Today RealtyTrac reported foreclosure filings on 279,561 properties in October, up 5 percent from September and up 25 percent from a year ago.

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Questions? Comments?