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Hope for Homeowners…Really?
The most discouraging thing about the recent bailout is that it has done nothing to help troubled homeowners, while passing gobs of tax payer money to Wall Street so that Goldman Sachs can pay huge executive bonuses and surreptitiously reopening tax loopholes that provide $25b in tax incentives for Wells Fargo to buy Wachovia Bank. Coming on the heels of a year’s worth of hollow promises, this is unconscionable.
Peter Miller of the FHA Mortgage Guide offers some updated statistics.
“Meanwhile, in case anyone missed it, RealtyTrac.com reports that homeowners received 279,561 foreclosure filings in the month of October. That’s up 25 percent when compared with October 2007.
While foreclosure numbers are going through the roof — or they would go through the roof if more people had such things. HUD reports that during the last two weeks of October it refinanced 54 — FIFTY-FOUR — delinquent conventional borrowers, about one per state.
As for the Hope for Homeowners program, it too is a disgrace. HUD says that it received 111 H4H loan applications to date and has approved, well, er, um, NONE. Not one. Nada. Zilch. Zero. Goose egg.”
The 54 HUD loans refered to in the middle paragraph above are the so called FHA Secure loans brought forward by the Bush administration in September of 2007. You may remember the claims by HUD which conflated general FHA refinances with FHA Secure refinances in order to pimp the numbers.
Hope for Homeowners (H4H) is the spawn of the more recent legislation that predicates it success on voluntary participation by the lenders involved. From the numbers, we can see how effective that strategy has been.
Is it any wonder that the bailout has failed to restore confidence in the markets. Is anyone even listening anymore? Perhaps we should give all the money directly to the people who need it, and let the banks and auto companies live the consequences of their failed policies. At least people could pay their mortgages down and spend the rest in the economy where it could do some good.
November 19th, 2008 at 9:22 am
Marc,
This is not a surprise. Any loan workout, loan modification, or refinance provided by any bank, GSE, or FHA should be based on fundamental underwriting standards. In other words, the person receiving a loan workout must prove that they can make the payments for a sustainable period of time. Anything less will just result in a future default. In other words, a future foreclosure.
The bottom line for the overwhelming majority of the people in trouble with their mortgages is that 1) They would never have qualified for a loan under traditional underwriting standards and 2) now that they are in trouble they are so far upside down in debt that there is no hope of qualifying even if the interest and principle are written down.
The troubled homeowners I talk to just want out. They have had a bad experience, they have usually spent their savings, and some have tapped their retirements trying to pay the bills. Some are experiencing devorice, job losses or job transfers. These people just want out so they can start fresh.
Couple these homeowners with the greedy homeowner that wants a workout but will not agree to anything short of a write down in principle and you will have the following:
1. Very few workouts will be completed
2. Of the workouts that are completed, a majority will end up in default and foreclosure in the near future.
The end result will be a slow down in the rate of foreclosures and price declines for the short term. But in the end the foreclosures will come and prices will continue their decline. Prices will stabilize when affordability is back in the market and when rents vs. cost of ownership after taxes savings are in line.
The ethical homeowner will be the exception to the above. But unfortunately, they are becoming a rare breed.
Have a great day,
Chris DeMattei
PS: The bailout was nothing more than a play to save Wall Street Investment banking firms and enable the big players. I reluctantly agreed to it and now I am kicking myself. They are so called capitalist so they should experience the results of unregulated capitalism.
November 19th, 2008 at 3:29 pm
Chris, thanks for your comments.
Now the auto company execs are pleading with Congress for a piece of the bailout action. Everyone agrees that they should experience the consequences of their business choices over the years, but now it has become a “jobs” issue.
It’s financial blackmail when business takes excessive risk and pockets the profits while making the public bail them out when they blow it by threatening enormous job losses or economic meltdown. How much longer will we let them hold the gun to our heads?
Hyman Minsky suggested that crises are formed by excessive accumulation of debt and that bailouts subvert the necessary part of the business cycle where those who take undue risk learn from their mistakes.