Wednesday, September 24, 2008

Hope NOW? Hope Never!

Remember how Hope Now was supposed to help all of the home owners in trouble and stop the record number of foreclosures? A little renegotiation between the lenders and the homeowners and everything would be OK. Boy those were the good old days.

Now we are asking if the record $700 billion bailout will help homeowners. There is an article from the San Fransisco Chronicle titled How bailout might help troubled homeowners. Lets take a look -

Under Democratic pressure, Republicans and the Treasury Department on Monday agreed that the bailout plan, which is still in flux, will include some kind of help for distressed homeowners. But just how this will be structured is a matter of fierce contention.

Some economists say that modifying home loans to make them more affordable will slow down the masses of foreclosures, thus putting the brakes on plunging home prices.

"If we solve the foreclosure problem at the consumer level, the root cause of the present problem, we will increase the value of mortgage-related securities and reduce the losses to the system," wrote Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley, in a position statement. "Foreclosures, all else equal, will double the loss on mortgages versus a loan modification program that keeps people in their houses."

But Dean Baker, director of the Center for Economic and Policy Research, a progressive think tank in Washington, D.C., said he thinks far fewer homeowners will turn out to be financially qualified for a modification.

"If someone can't afford it, we're not going to buy them a house," he said. "I don't think it will transform the housing market. Maybe it will reduce the number of foreclosures by 10 percent or 15 percent if we're lucky. We still have an awful lot of people with mortgages they can't afford."

Also interesting at the end of the article there is a review of calls made to a housing hot line designed to keep people in their homes. Approximately 20% of the calls need budget counseling prior to even entering a contract, 10% want to leave their homes (sell or walk away), 35% would not ever be qualified due to income, 17.5% may be qualified but there are too many problems and only 17.5% qualified for a loan modification actually make it to completion. And these are the people reaching out for help.


Tom said...

The issue with HOPE Now, in my opinion, is that part of it replies on lenders to agree to a 10% reduction in principle to refinance into an FHA fixed rate mortgage.

I don't think lenders are too happy with that even though the alternative isn't any better and probably worse. Don't have exact numbers but it looks like a lot of modifications involve extending the term and lower payments. If anything principle is added to cover delinquency fees.

So many loans were just so bad that there was no way they can qualify the current homeowner to stay in the house under the current conditions.

Banks are in a real tight spot here.

The good thing about HOPE Now though, is that they do not charge up front fees. There are a number of companies going after the same homeowners, charging up front fees and some according to lawsuits filed by various State Attorney Generals, are not delivering on their promises.

Tom said...

Crap I knew I messed something up. To refinance into an FHA loan under the program it's not 90% of principle, it's 90% of FMV. Makes it less enticing to the lender.

It also wipes out second liens so it's as if we fast forwarded to the auction date and the current borrower gets to buy their own house at auction but everyone saves time and money.

The Hope Now Alliance is also made up by a lot of lenders.