HUD Secretary’s Comments on Foreclosure Prevention
HUD Secretary Steve Preston spoke in front of the National Press Club on Wednesday regarding the current mortgage crisis, and HUD’s role in foreclosure prevention. I saw a re-broadcast on C-Span.
Here are some of his comments from the Q&A session:
Participation in the H4H program has been “low… very low.” While he didn’t have a number (which probably would have been embarrassing), he felt that some of the recent changes to the program would increase participation.
Notably, he felt that compensation to second lienholders would help.
When asked how much that compensation would be, he said, “Nominal… pennies on the dollar.”
Obviously, Mr. Preston has never been involved in a short sale where the servicer for the second loan says, “This offer isn’t worth the effort to process the paperwork.”
When you offer “pennies on the dollar” to a second lienholder, not only is the investor not terribly interested, but the servicer has to be compensated out of the proceeds for handling the transaction. Why would a servicer react favorably?
I’ve been saying for over a year and a half now: if you want servicers to increase their efforts, they MUST be paid more. Thus far, investors have shown very little interest in paying more to those who are representing their best interests- the servicers.
Here again, the investor community has yet to “get a clue” on how to make the best of a bad situation.
For God’s sake, if you spent an extra $1,000 per file on modification servicing and you get average results, you’re spending $2,000 to save $30-40 THOUSAND.
Wake up!
Next, Preston also acknowledged that FHA Secure has been pitiful in helping homeowners with foreclosure prevention. Just 4,000 borrowers who’ve refinanced through FHA Secure were behind on their mortgages.
The HUD Secretary also said that he had hoped that there would have been other modifications to the “Help for Homeowners” program. One change that he mentioned was that he had wanted the DTI ratios raised to 38/50.
Okay, perhaps Mr. Preston and Brian Montgomery (FHA Commissioner) should compare notes about foreclosure prevention. One of Mr. Montgomery’s chief concerns was taking on a lot of bad loans by refinancing delinquent borrowers and increasing the risk profile of HUD-insured portfolios.
So how, exactly, would increasing debt ratios to 38 (mortgage payments no more than 38% of GROSS income) and 50 (50% of GROSS income going towards debt payments), help HUD to mitigate their risk?
Frankly, Mr. Preston won’t be around too much longer, while Mr. Montgomery will likely be left behind to deal with whatever mess is foisted on his department.
Also, while Mr. Preston claimed that he preferred traditional, full-doc underwriting standards when creating new loans, he somehow thinks it’s best if loan modifications become more “streamlined,” offering new terms to borrowers with little-to-no documentation.
I’m trying to understand how you can reconcile those two viewpoints.
When asked what signs we should be looking for that would indicate a bottom and the beginnings of a recovery in the housing market, he said, “We’re taking a wait-and-see approach.”
What he should have said is this: the bottom in the housing market will be reached when the average homeowner can buy the average-priced home.
The more I hear from these industry “leaders,” the more I wonder if they really just don’t see the forest for the trees, or if they just don’t care.
With commentary like this, it’s clear why governmental “solutions” for the issue of foreclosure prevention have fallen flat, and will continue to do so.
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