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Expectations lowered for new mortgage aid program
WASHINGTON – Nov. 4, 2008 – The government expects only 20,000 troubled
borrowers will apply to refinance into more affordable home loans by next fall
under a new mortgage aid program passed by lawmakers over the summer.
The $300 billion “Hope for Homeowners” program was launched Oct. 1. Designed
by lawmakers eager to respond to the mortgage crisis, the Congressional Budget
Office had projected it would let 400,000 troubled homeowners swap risky loans
for conventional 30-year fixed rate loans with lower rates.
But the early results are discouraging: the government received only 42
applications in the program’s first two weeks, according to the Federal Housing
Administration. The low turnout was first reported by the industry newsletter
Housing Wire. Since the applications take about 60 days to process, no loans have
been approved yet.
Steve O’Halloran, spokesman for the Department of Housing and Urban
Development, called the projection of nearly 20,000 borrowers “an extremely
preliminary estimate of early applications for a program that is barely a month
old. Borrowers and lenders are continuing to sign up.”
Since the program requires lenders to voluntarily reduce the value of a loan and
take a loss, it’s unclear how many lenders will participate. In addition, the
program may be unattractive to some borrowers because those who sell their
properties must agree to share some of their profits with the government.
“It just reinforces that none of the federal efforts to date seem to be getting the
job done,” said mortgage industry consultant Howard Glaser, a former housing
official in the Clinton administration. “There’s just no question that when a new
president and Congress come back to town, they’re going to take much more
aggressive intervention.”
To participate, homeowners can try to persuade their existing lender to join the
program, but the decision is ultimately up to the lender. The banking industry
appears likely to favor options that don’t require an immediate reduction in
principal, such as deferring payments, allowing partial payments and lowering the
interest rate.
“We’ve said from the start that it would be a tool that would be used after other
loss mitigation programs and opportunities would be exhausted,” said John
Courson, chief operating officer of the Mortgage Bankers Association.
Hope For Homeowners is limited to borrowers who are spending more than 31
percent of their income on mortgage payments. Loans made after Jan. 1 of this
year are excluded.
Brian Brady, managing director of mortgage banking and brokerage firm World
Wide Credit Corp. in San Diego, said the industry could well accelerate its use of
the program in the coming months. Many in the industry “are probably just
waiting to see how it works ... Mortgage banking is a monkey-see, monkey-do
business. Everybody waits for someone to do it first.”
There is broad agreement on using the FHA to help struggling homeowners
refinance into mortgages they can afford. And the Bush administration has
broadened the agency’s authority under a program it calls FHASecure.
Over the next year about 770,000 borrowers were expected to use that program,
though only 14,700, or fewer than 1 percent, were likely to be delinquent on their
mortgages.
Meanwhile, consumer advocates and the banking industry alike have been eagerly
awaiting an announcement of an ambitious plan to help around 3 million
borrowers avoid foreclosure, though it remained uncertain whether the Bush
administration would do so.
“The question on the table is, do we need to do more to help homeowners? If that
answer is yes, then there’s a lot of other issues that have to be analyzed,” White
House press secretary Dana Perino said Monday.
Still, many believed the Bush administration would eventually act, as foreclosures
continue to skyrocket. “I think they finally get it,” said John Taylor, president of
the National Community Reinvestment Coalition, a consumer group in
Washington.