Posts
HUD Secretary Steve Preston says "Congress dotted the i's and crossed the t's for us, and unfortunately it has made this program tough to use." (By Chip Somodevilla -- Getty Images)
As reported by The Washington Post, Secretary of Housing and Urban Development Steve Preston said the centerpiece of the federal government's effort to help struggling homeowners has been a failure and he's blaming Congress.
The three-year program was supposed to help 400,000 borrowers avoid foreclosure. But it has attracted only 312 applications since its October launch because it is too expensive and onerous for lenders and borrowers alike, Preston said in an interview.
"What most people don't understand is that this program was designed to the detail by Congress," Preston said. "Congress dotted the i's and crossed the t's for us, and unfortunately it has made this program tough to use."
The criticism comes as Congress prepares to weigh in with further plans to help distressed borrowers facing foreclosures, which are at the root of the financial meltdown. This week, House Speaker Nancy Pelosi (D-Calif.) demanded that the Treasury Department use some of the money from the $700 billion emergency rescue package to help at-risk homeowners.
One of several federal and state foreclosure prevention initiatives facing difficulties, HUD's Hope for Homeowners program has been especially hamstrung. For instance, a program launched by the Federal Deposit Insurance Corp. on behalf of IndyMac Bank customers has modified more than 3,500 mortgages in two months of operation.
Rep. Barney Frank (D-Mass.), who helped steer the HUD program through Congress, said some of the federal bailout money should be used to revamp it. Frank acknowledged the initiative has its problems, but he blamed them on the Bush administration.
"That's partly their fault," said Frank, chairman of the House Financial Services Committee. "The administration was critical of the program and kept putting pressure on us to make it cheaper and more restrictive. . . . If it hadn't been for the Bush administration's opposition, we would have written it in a better way in the first place."
The goal of the program, run by the Federal Housing Administration, was to allow borrowers who owe more than their homes are worth to refinance into more affordable 30-year fixed-rate mortgages insured by the government.
But part of the problem is that the program's success hinges on the lenders' willingness to participate.
Congress originally allowed the FHA to insure new loans for only 90 percent of a home's value. With home prices plunging, borrowers who have little or no equity in their homes and cannot otherwise come up with the remaining 10 percent qualify only if the lender forgives this balance. Lenders balked.
Late last month, Congress granted HUD permission to increase the amount that's insured and the department decided to guarantee up to 96.5 percent of the value of new loans. Preston in the interview praised that change. But its impact remains unclear.
"Getting the lenders to agree . . . has been our biggest challenge," said Peyton Herbert, director of foreclosure services at HomeFree USA, a housing counseling firm in Hyattsville. "They want dollar for dollar what's owed on that loan or something close to it. That's the fly in the ointment." More HERE
Michael Corkery at wsj.com is following this story and writes: The failure of Hope for Homeowners to prevent foreclosures is sparking a blame game in Washington. The Department of Housing and Urban Development, which runs the voluntary program, says Congress made it too restrictive and expensive for homeowners.
Congressional leaders say the program’s failure — only 357 people have signed up since Oct. 1 — shows that lenders aren’t willing to modify loans voluntarily and they need to be forced to do so.
But HUD officials say other problems are hampering the program’s success. In order to refinance through Hope for Homeowners, applicants must certify they did not supply false or misleading information on a previous loan application. The HUD program also requires homeowners to supply two years of financial records.
HUD officials believe that people who used “stated income” mortgages which required no documentation of income, are having a hard time qualifying for Hope for Homeowners because of incorrect information on their previous loans. It might not all be the borrowers fault. In many cases, mortgage brokers and lenders fudged loan applications.
Either way, it appears that stated income mortgages, which are known as “liar loans,” are earning their nickname.
Here’s a list of the government sponsored and voluntary lender foreclosure prevention programs and how they are faring so far. MORE HERE
