Wednesday, October 22, 2008

HUD's Hope 4 Homeowners Program makes Lenders Yawn

On October 1st the Bush administration proudly announced new legislation aimed at helping homeowners keep their homes and avoid foreclosure. Called the "Hope for Homeowners" program (, it has lender and broker phones ringing of the hook!

The problem is, no one that matters is really answering their phone. Seems the Bush administration and HUD forgot to check with the decision makers at the lenders where they want the loans modified.

Just another example of our wonderful politicians operating in a vacuum! As usual, they're more concerned with PR to get re-elected than solutions that'll actually accomplish something. The program is hi-lited on the first page of HUD's website with a pic of an American flag. Very apple pie of them, but this is October and I'm thinking pumpkin pie.

So, what does the program offer as a solution? Well IF a lender will write down the amount the're owed to 90% of a property's current appraised value, then the homeowner can qualify for a new FHA insured fixed-rate mortgage. Well lenders aren't too excited about taking a hit by lowering the principal balance of a loan. They gave this feedback when the program was first announced a couple of months ago, but the politicians passed on the feedback & the opportunity to revise the program to get lenders to buy into it.

We do loan modifications and the LAST thing lenders will approve is a principal reduction. They will offer a lower rate, longer term or even an interest only period before they will agree to lowering the loan balance. We know of several cases where principal has been reduced, but it seems to be confined to subprime loans at this time.

Some other challenges with the program:
- Homeowner can't own any other properties. Not a lot of help for those with cottages they can't sell.

- Lenders with a second mortgage on the property must swallow 100% of what they're owed! I can't see that happening so forgot all the homeowners with second mortgages on their homes. I don't know what the politicians were thinking on this requirement.

- A minimum of 50% of all future appreciation must be shared with the lender. Surprise - this one's actually pretty creative and makes sense. I guarantee though, that many participating homeowners will have short-term memories and be shocked & outraged when they do sell in the future and have this clause sprung on them.

- Last, but not least, the program bans any new 2nd mortgages for the first 5 years of the new loan, except for emergency repairs. How will the affected homeowners roll their credit card debt into their ATM machine, I mean home, so they can keep the U.S. economy humming by charging them up again?

We live in interesting times.

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Drew Sygit is President of The Lending Edge and holds mortgage industry designations CMPS, CMLO, CALO and has an MBA. He’s spoken for HUD, has written numerous articles and is a mortgage industry advocate for loan originator licensing and consumer education. He can be reached at 248-356-3739 or

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