'Hope for Homeowners,' Still Long in Coming
We interrupt this financial crisis with a word from its sponsor: the families who are losing homes to foreclosure.
They're still circling the drain, to pick up on Federal Reserve Chairman Ben S. Bernanke's colorful metaphor describing credit markets as the economy's plumbing. Right now, the plumbing is clogged with bad securities backed by bad home mortgages. The federal bailout is designed to free up the system.
A separate bailout for troubled homeowners is supposed to launch this week. The new "Hope for Homeowners" program, passed in late July, is scheduled to go into effect Wednesday. (That's lightning speed by government standards.) It's designed to allow refinancing for people who cannot pay their mortgage and who can't refinance into something better because their home value is now too low to pay off the unaffordable old loan.
Under the program, those borrowers may qualify for a new, 30-year, fixed-rate mortgage insured by the Federal Housing Administration if (and it's a huge if) their current lender agrees to forgive enough of their debt so that they would have at least 10 percent equity, right now.
These FHA loans are not available to people who could afford to keep paying their current loans but who don't want to because the home has lost value. Nor are they available to investors, flippers or to anyone who owns a second home.
Lender participation is voluntary, and writing off principal is the last technique most will employ when trying to save borrowers from foreclosure. At a hearing before the House Financial Services Committee on Sept. 17, Molly Sheehan, senior vice president of Chase Home Lending, said, "The investor community still disfavors principal reduction."
In other words, the investors who own the bonds backed by these bad mortgages don't like to write off part of the debt owed so the homeowner can avoid foreclosure. They would rather try something else first, such as reducing the interest rate or stretching out the repayment period, which causes smaller losses to them. Or they might even prefer that the home goes into foreclosure.
Bank of America, which earlier this year bought big mortgage lender Countrywide, seems more accommodating than some other lenders. Michael Gross, managing director for loss mitigation, said BofA postponed all 1,650 foreclosures that were scheduled from Sept. 8 to Sep. 22 until at least Oct. 15 and is evaluating whether those borrowers might benefit from the new Hope refinance. "We will use this program where it is needed," he said. An estimated 30,000 to 40,000 of the bank's customers may qualify.
Relief will probably not arrive on the Wednesday start date. The final details of the program hadn't been published as of last week. And the folks on the front lines of the housing crisis -- housing and debt counselors -- certainly don't have the details.
Those counselors are overwhelmed right now. In Prince George's County, for example, it can take weeks to schedule an appointment with a counselor certified by the Housing and Urban Development Department. It's even tough to get a live person to answer the phone at many agencies.
Mary Dade, the housing counseling program manager for United Communities Against Poverty, a nonprofit community-action agency in Capitol Heights, said many of the people coming in for help simply have too much debt -- of all types -- to enable them to keep their homes. "We do have a problem with the economy right now," she said. "Just the amount of debt you see is overwhelming."
She has heard about the new Hope refinance program but isn't prepared to field questions from borrowers. "I don't think the housing-counseling agencies have been given a detailed briefing on that," she said. She added that she doesn't tend to get too excited about new programs because in the past they have helped relatively few borrowers.