HUD Shuts Down Program to Prevent Foreclosure
The U.S. Department of Housing and Urban Development will shut down the FHA Secure Refinance program at the end of this year. The program, which was supposed to help 240,000 sub-prime borrowers to refinance into fixed rate FHA loans, fell just a little short of its foreclosure prevention goal.
As of a year ago, only 266 of the FHA Secure program loans were originated for borrowers who were delinquent at the time of the refinance. When it became clear that very few delinquent homeowners would be helped by the program, HUD began counting all FHA refis as FHA Secure, in order to pad the numbers.
It was clear from day one that, based on the criteria, very few homeowners would be able to prevent foreclosure through this program.
Late this summer, while hawking the Emergency Economic Stabilization Act of 2008, members of Congress were exclaiming that 400,000 borrowers would be helped to prevent foreclosure with the “Help for Homeowners” refinance program, which would allow them to refinance into fixed rate loans. Of course, this program is dependent on the cooperation of the current lenders. Apparently, that cooperation has not been forthcoming. Who could have guessed it?
Recently, with the passage of the Emergency Economic Stabilization Act of 2008, the Help for Homeowners program was scheduled to begin on October 1, 2008. Again, a swing and a miss: only 312 applications have been submitted. Obviously, not all of those applications will result in foreclosure prevention.
This is what happens when legislators draft “solutions” to problems. Of course, now Barney Frank blames George Bush for the watering down of the bill. Sure, blame W… everyone else does.
For anyone who wonders how all the government intervention of 2008 will end up, you need look no further than the performance of these plans.
Most recently, we have the Fannie Mae “streamlined loan modification” program. I argued with a former Freddie Mac official over the intelligence (or lack thereof) in thinking that modified loan payments of 38% of gross income. He asked me what type of borrowers I typically deal with [median income]. He clarified that this approach would work with borrowers who have “higher incomes.” How much higher, who knows? No point in trying to convince a man that something is true when his paycheck depends on it not being true.
I’ve said this before: the investors are as deep in denial as most homeowners who are trying to prevent foreclosure. So MANY times I’ve heard lending industry types opine about homeowners who don’t communicate with the servicer. Denial is just one of the top three reasons. Ftom the beginning of this crisis, it’s been clear to me that the investors are just as unwilling to face their inevitable losses as the borrowers. “Streamlined loan modifications” at 38% will fail at an even higher rate than the current recidivism measure, and the losses that could have been avoided with a more intelligent approach will be amplified when they’re finally accounted for, at a later time, with lower asset values.
Regardless of income or station in life, human nature prevails. A real, sensible, sustainable solution to the foreclosure prevention problem will probably not come from those who are currently trying to solve it.
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