New Foreclosure-Fighting Strategies Emergeby Tim Manni
According to industry sources, reports emerged yesterday of President Obama formulating a foreclosure-prevention strategy that involves subsidizing mortgages.
News of such a plan would break the mold of current foreclosure-fighting strategies, as it would aid homeowners before they fall behind on their mortgage payments. This may actually be the first tried and true foreclosure prevention program.
Under the evolving plan, sources said homes would undergo a standardized reappraisal and homeowners would face a uniform eligibility test.
At this juncture this “eligibility test” is an ill-defined concept. The devil is in the details as far as what the test means or entails.
The most recent and innovative foreclosure-prevention strategy was announced by the Federal Housing Finance Agency (FHFA) back in November. The streamlined home-loan modification program created an industry standard that defined what makes a home loan “affordable.” At that time, the FHFA announced the benchmark for creating an affordable payment was 38% of a homeowner’s gross-monthly income. Only borrowers who missed three payments or more were eligible for this program.
Yet, when FHFA Director James Lockhart addressed colleagues at the American Securitization Forum this week in Las Vegas, his message was clear. Current foreclosure initiatives are “taking too long,” and “need to be more aggressive to reach more troubled borrowers.”
If a borrower is already 90 days late, is a foreclosure really preventable?
The offer to provide assistance to homeowners who have not yet failed is key. “You have to help the people that are still paying the bills,” said HSH Vice President Keith Gumbinger. Aside from various loan-mod plans, no foreclosure-assistance program to date has targeted responsible borrowers. “For most borrowers, you can’t get help unless you fail,” said Gumbinger.
Although details are scant, the concept is encouraging in that “at least there are signs they are beginning to think differently about the problem,” said Gumbinger.
We’ll keep you up to date as the new administration irons out their new homeowner-assistance programs.