The Housing Chronicles Blog: Hope Now helps 1 million homeowners

Monday, March 3, 2008

Hope Now helps 1 million homeowners

The Hope Now coalition of lenders created by the Bush Administration reports that it has helped 1 million homeowners at risk of foreclosure. Of that amount, 278,000 actually saw their loans modified, while the remainder were put on repayment plans to make up for missed payments. So will this plan have long-term benefits or it is merely a band-aid? It depends on the borrower and their circumstances. From a article:

Hope Now, the foreclosure prevention coalition put together with the Bush administration's support, claims dramatic success in helping at-risk mortgage borrowers stay in their homes.

The groups has reworked more than 1 million mortgage loans since July, Treasury Secretary Henry Paulson said in a speech before the National Association of Business economists on Monday.

But of those borrowers, only 278,000 actually saw the terms of their mortgages modified. Their lenders either froze or reduced their interest rates, and may have reduced their balances as well to make loans more affordable.

The remaining home owners were put on repayment plans, which merely allow borrowers to make up missed payments by tacking them on to the life of the loan...

"The number of loans being modified shows progress," said Austin King, director of the Financial Justice Center for the Association of Community organization for Reform Now (Acorn), "but it's still not enough."

"The majority of the work-outs are still repayment plans, which are not going to [keep people out of foreclosure]," said King. "The reliance on repayment plans is one of the biggest failings of the lenders."

When borrowers are stretched so thin that a financial setback, such as unexpected medical bills or temporary job loss, puts them behind on payments it means they really don't have enough income to keep up their mortgage payments. And tacking on missed payments on to a loan just makes things worse, according to King. Many of those borrowers will default again.

Even many mortgage modifications have shortcomings and may also simply delay default. If low teaser rates on hybrid adjustable rate mortgages are simply extended for a year or two, borrowers may still fall behind when the rates do finally reset, according to King.

"For modifications to work, they have to make the loans more affordable [permanently]," he said.

In addition to lender cooperation, Paulson also noted in his speech that homeowners have to seek help out if they need it. He noted that lenders only get a 2% - 3% response rate when they contact struggling home owners. The Hope Now alliance, which includes Citigroup (C, Fortune 500), J.P. Morgan (JPM, Fortune 500), Wells Fargo (WFC, Fortune 500), Bank of America (BAC, Fortune 500) and many other banks, has a 20% response rate.

Still, he noted that leaves 80% of at-risk borrowers without a plan. "If borrowers don't ask for help, they will have to bear the consequences," Paulson said, "which may very well mean losing their homes when that could have been prevented."

In other words, avoiding the issue would be the worst plan of action for many.

I personally know of someone who was at risk of foreclosure on a home in the Antelope Valley desert area north of Los Angeles, but after his lender reduced his interest rate substantially, it allowed him to save $700 per month on the mortgage payment, so now he can afford the house and wait for values to rebound to refinance or sell.

Contacting a lender really can work for some borrowers in trouble.

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