Tuesday, October 28, 2008

Hope For Homeowners Program Is A Complete Failure

foreclosure sad womanMany people were excited about the Hope for Homeowners program that was recently rolled out to help curb the growing number of foreclosures, and keep people in their homes. Unfortunately, as Anthony Freed points out in his blog post on Your Mortgage or Your Life, things did not quite turn out as planned.

As banks continue to line up for the taxpayer funded handouts designed to ease their withdrawals from years of dependence on high yields derived from ridiculously reckless lending practices, homeowners continue to seek avenues to prevent the looming possibility of foreclosure - typically cited as the root cause of the economic ‘crisis’ that currently grips world financial markets.

It’s reassuring to know that our dedicated civil servants are willing to put in the long hours required, on nights and weekends, to make sure their banking buddies and colleagues don’t have to suffer the same fate as many banking executives of late, having to retire with hundreds of millions of dollars that were fraudulently paid out as options and bonuses as reward for investing long and naked, and exposing their companies to tremendous risks.

By the way - none of those profits from the ‘boom’ are being appropriated in order to reimburse those now failing companies, and none of that money is going to be recovered in order to soften the blow to taxpayers.

That money is considered to be lawful compensation for a job poorly done. What is on the table is just exactly how much more bonuses they should get before their companies are declared illiquid then subsequently sold off to the lone bidder for pennies on the dollar, and how much of the bailout money they will use to buy up competitors instead of lending it out as promised.

And for the lowly taxpayer on whose backs both the illicit corporate profits as well as the cost of the bailout are borne? What has this unprecedented dash to action by the bureaucrats, political appointees, and elected representatives of the people wrought in the way of sanctuary from the economic tempest that has engulfed their citizenry?

How about the dandy “Hope for Homeowners” program, designed to help more than 400,000 homeowners avoid foreclosure by making as much as $300 billion dollars available for the effort. What a fantastic idea, it would seem at first glance. Of course, the Devil really is in the details.

As of today, October 27, 2008 - nearly four weeks since the program was unveiled - a remarkable 79 people have applied for the program (Fox News 8-27-08).

Yes, 79 homeowners have been accepted (Fox News 8-27-08).

There are at least 77 banks participating in the program. I am not going to try to do that math in my head, but my best guess is that each of those banks has only helped about one homeowner avoid foreclosure on average in that 27 day period.

With all of the poorly underwritten loans Countrywide booked - and the tens of billions of dollars in profits they made in the process - one would think they might be on the list of participating lenders. Not surprisingly, they are not. Although a unit of Bank of America now, there has been no indication they will assume the responsibility for modification of existing Countrywide loans.

My first impression was that this had to be due to a simple lack of awareness by the public that such a program was available to them. Not the case at all I have found. The program has generated a great deal of interest from distressed homeowners since it was unveiled.

Lenders have been deluged with inquiries from interested borrowers, and the Congressional Budget Office has estimated that this program could help as many as 400,000 homeowners through September 2011, when the program ends.

“Our phones have been going crazy,” said Anthony Logan, president of Group Capital Mortgage in Cerritos, Calif, a participating lender.

What’s the hold up? Why, it’s the program itself, which was designed almost certainly to fail. First of all, the program is completely voluntary for both the lenders and the participating banks. It also requires the lenders to forgive a portion of the original loan balance in an effort to bring the mortgage in line with the market and affordability for the borrower to enter a long term fixed mortgage.

It allows certain borrowers at risk of foreclosure to refinance into a 30- year fixed-rate loan insured by the Federal Housing Administration (FHA) if the current lender agrees to write down the existing loan to 90% of the home’s market value today. In plummeting areas such as California, if a lender holds a $500,000 mortgage and the home’s current appraisal comes in at $400,000, the lender would forgive $140,000 in all. Even before the program launched, lenders expressed concerns about the potentially enormous write downs they would face.

Incredibly, in the face of receiving the largest publicly funded bailout of private industry in history, supposedly caused by nonperforming securities backed by rapidly foreclosing mortgages, the banks themselves are refusing to use a portion of that bailout money to help alleviate the very circumstances that had predicated the public bailout in the first place.

Refinancing into the new government-backed program requires your current lender’s approval. If the home’s value is less than the mortgage — which real estate data provider Zillow.com estimates applies to nearly one-third of American borrowers who bought in the last five years — the note’s owner must also agree to reduce the amount owed on the house to 90 percent of its current appraised value. If you owe $190,000 on a house that’s only worth that much, the bank would have to agree to reduce the loan to $171,000, giving up $19,000 in principal, plus interest.”

Meanwhile, two million families are expected to lose their homes to foreclosure in the next two years.

There is a serious leadership vacuum in this country, especially at the upper echelons of both government and business. Their priorities and policies are bankrupting our nation, and the close relationship between these private industries and our government regulatory agencies should be rigorously examined.

Henry Paulson, former CEO of Goldman Sachs, was one of the major architects and proponents of the “self-regulating” banking model developed in the 1990’s.

Heavy deregulation and the elimination of the safety barriers that had existed between the retail banks and investment banks, as well as the experimental distribution of risk to world-wide markets through untested financial vehicles, led to the erosion of the credit markets.

This system, partially conceived and enthusiastically advocated by Paulson, directly led to the current financial crisis that threatens the first worldwide depression since the 1930’s.

Now, for better or worse, we have handed the job of fixing this mess to the very people most instrumental in it’s cause, namely Paulson.

Is it any wonder that the phones are ringing off the hooks as desperate homeowners look for help and scramble to avert financial ruin by refinancing out of predatory loans, and yet only 79 loans being made to save them nationwide?

If it is not for lack of a program, and if it is not for a lack of interest on the borrowers part, that only leaves the failure of the program to the usual culprits - the banks.

“We know the interest from the public is there, and the next question that can’t be answered yet is are the lenders going to do this?” says Bill Glavin, special assistant to the FHA commissioner, who notes that it generally takes at least 45 to 60 days to complete the process for a regular FHA loan.”

Well Bill, here is your answer from them banks: “No.”

This article has been reposted from Your Mortgage or Your Life. The full post can also be viewed on Your Mortgage or Your Life.


Anonymous said...

And to think this whole mess could be explained by the movie "Animal House"

See how at:


Unknown said...

In the past 8 years, Congress didn't care about the homeowners. Banks didn't care about the homeowners. Nobody approved of the 850 billion dollars bailout, except for congress and the irresponsible banks that made the loans. It's time for the homeowners that bought in the past 8 years to get even. Effective immediately, everyone of these homeowners should stop paying their mortgages and sit in their homes until they get evicted. When and ever they get evicted, use the savings from not paying their mortgage to buy a forclosure with cash from the savings. What do they have to lose.

Anonymous said...

I thought this program was only for homes with a single mortgage. Beings all these fools used a 2nd mortgage for a down payment (have no "skin" in the game), or have a HELOC, they probably don't qualify anyway.
Definitely leaves Calif out of the mix.

Anonymous said...

My company is on the hope for homeowners list we get 200 calls a day for the program. There are a couple of corrections needed on the original article, 79 people have applied that does not mean they have been endorsed there is a big difference, they have not been fha endorsed because there are no banks or investors to purchase them. Also the customer has a second mortgage he can use the program, unfortunately the second mortgage must agree currently to take nothing so the customer can refinance. I read an article quoting the FHA secretary Preston saying they were working on rewriting some of the guidelines to allow a small payment to second mortgage holders. It won't make a difference in my opinion.

what really is amusing is we gave the banks all this Bailout money under the pretext they needed it to cover toxic mortgage loan losses, so why are they unable or unwilling to participate in the program? Their investors won't let them. They have their cake and get to eat it to.

Anonymous said...

Thank you very much for your post. Absolutely excellent information and very useful for me. Great done and keep posted. Looking forward to reading more from you.

Anonymous said...

I am a home owner with an ARM & my mortgage company wont help me. As most home owners my house will not sell for near what i bought it for 2 1/2yrs ago but my mortgage company doesnt care & told me to sell since i cant afford it instead of working with me to keep me in the house.

I have called MANY of the companies participating in the HOPE program & had no luck getting help except with one of them but now he is telling me i need to pay him for the time he will spend on my loan.

That's BS since there is no promise he can help me & i am not in the position to waist any more money in hopes he can help me.

If you know of any company out there that is ligit & participating please email me PAYTESJL@HOMAIL.COM

Thank You,
Struggling Home Owner

Anonymous said...

This program is not a complete failure. I used Hope for Homeowners and saved my home from foreclosure. The entire process took less than a week. Although, my situation may be a little different than a lot of other homeowners. A counselor from Hope for Homeowners called me at a prearranged time. We went over my monthly expenses and my current mortgage and came up with a new plan. At that time we called my mortgage company together. I was terrified, I didn't know what was going to happen. My counselor stayed on the phone and did most of the talking. He presented my mortgage company with my offer and offered some valuable advice to me when the call was complete. My mortgage holder asked me to provide some financial statements: last two pay stubs,last two bank statements,last two tax returns and provide a grievance letter explaining why we needed to modify our mortgage. I was told it could take 30 to 60 days to complete the process. It took less than a week. My interest rate was reduced enough to save us over $300.00 on our mortgage payment. And we now have a fixed rate instead of a adjustable rate.
This system can work for some. Don't give up, at least talk with a counselor from Hope for Homeowners or your Mortgage holder. My mortgage holder was very helpful and open to helping us keep our home. Bye the way, my mortgage holder is American Home Mortgage Inc.

Anonymous said...

I have used HOPE in the past and were surprised they actually help save my home. The mortgage payments were several months behind and I could not may the payments a friend told me about the program I called because I had nothing to lose. The counselor worked with my budget and had the mortgage company drop the last fees and tne payments which I was behind on. My mortgage company is Citi. I have also referred them in the past to friends which also received assistted with their payments.

HouseOwners said...

Very good post and interesting information! House owners should be aware of all this situations in this times of financial crisis...