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November 13th, 2008

Little Hope In “Hope for Homeowners?”

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The federal initiative to kick foreclosures began in earnest on October 1 of this year when the “Hope for Homeowners” (H4H) program, part of the Housing and Economic Recovery Act of 2008, was put into action. Unfortunately, so far the program has proven to be a dud — such a disappointment that, according to CNBC’s Diana Olick, HUD took their projection of helping 400,000 homeowners avoid foreclosure in three years off of their press release (dated October 1, 2008). The program which carries a budget of $300 billion will, based on the latest projections, only service 19,000 homeowners 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.

To date the Federal Housing Administration has collected 111 applications from lenders to apply for the program — hardly enough to meet the latest expectation of 19,000 in the first year.

Since the details of the program were released, we warned about the potential failure of these types of programs due to not only the necessary participation by both the lender and the investor, but that the homeowners must fit into specific and limited parameters and qualifications to take advantage.

Here’s the upside: In the last two weeks, both financial institutions and government agencies have revealed initiatives, programs, and industry standards designed to fight foreclosures. Investor resistance to such programs like the H4H has begun to wane as falling home prices continue to leave them with little option to recover the largest portion of their investment. Point being, as time goes on, H4H could see a jump in their applications as investors see these programs as their best chance for a decent return.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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