Thursday, March 26, 2009

HOPE Prevents 1 Foreclosure

CNN Money reports HOPE for Homeowners has been a failure. But Congress thinks some tweaks will revive it.

In the five months since it has been in effect, HOPE has helped exactly one homeowner to avoid foreclosure. This despite Congress having made $300 billion available to back these loans and estimating that the program would benefit as many as 400,000 families.

"As it stands now, we've only gotten 752 applications," said Federal Housing Authority spokesman Brian Sullivan. "And only insured one loan. Needless to say, the program isn't working terribly well."

Rep. Michael Castle (R - Del.), who sits on the House Financial Services Committee, agreed, calling HOPE "one of the most failed programs we've had in a long time."

Estimates for the number of homeowners who this program will help have also been lowered.

The Congressional Budget Office now projects that HOPE for Homeowners could help just 25,000 mortgage borrowers over the next 10 years at a cost of $675 million.

…The original program called for lenders to voluntarily refinance delinquent mortgages by reducing the principal balance on loans to 90% of a home's current market value. The new 30-year, fixed-rate loans would then be backed by the FHA. Under the new plan, lenders would only have to write it down to 93%.

Borrowers who owed $220,000 on a house valued at $200,000, for example, would need their mortgage balances reduced to $180,000 to qualify for an original HOPE for Homeowners refi. That's a $40,000 write-off. Under the new plan, lenders would have to forgive $34,000.

Lenders simply won't do that very often. They prefer to use term extensions or interest rate reductions to help make mortgage payments affordable for at-risk homeowners. As a result, most of the big lenders refused to participate in the program, which was strictly voluntary though heavily encouraged by the Bush and Obama administrations.

"Writing down principal is the last thing you want to do because you have to realize the loss immediately," said Paul Leonard, a spokesman for the Housing Policy Council, a coalition of mortgage lenders.

The program has also failed, Leonard added, because of the conditions and limits the program imposed. Borrowers, for example, had to agree to pay the government 50% of any future profits they made from selling the property. Under the new version of HOPE, borrowers would no longer have to split any earnings with Uncle Sam.

Other changes include incentive payments to servicers of $1,000 to induce them to participate.