When the Housing and Economic Recovery Program of 2008 was passed in late July, we wrote about the Hope for Homeowners Program. Some of the highlights of the program include:
- The program is a voluntary program for lenders to participate in
- Lenders will reduce the amount of money that they are willing to accept to pay off your current mortgage (this has become known as a “short-refinance”)
- A new mortgage will be issued by the new lender based on your current homes value
- FHA will share in the appreciation of the home, not the lender who took the loss
- FHA will collect a 3% “exit fee” when you sell the home or refinance it
Are lenders happy with this program? Ummm…. It doesn’t look like it.
According to the Assistant Secretary for Housing at HUD Brian Montgomery:
“I think lenders will be enthusiastic about the program but they have other things they’d like to do before they do a principal write down”.
What are the signs that lenders are less-than-excited about the Hope for Homeowners program?
- There is no official list published of lenders who are participating in the program
- There is no standardized method of working with these lenders — so each scenario with each lender is handled on an individual basis
- There is growing sentiment among the lenders that any other loss mitigation method (loan modification or workout) is financially better for the current lender than the Hope for Homeowners program
Even Sheila Bair, who heads the Federal Deposit Insurance Corporation, praised the FHA program but said that few borrowers with IndyMac, the bank that the FDIC took over in July, would use it.
She said that her responsibility to maximize profits for the investors would probably limit the number of IndyMac borrowers who would take advantage of the Hope for Homeowners program.
Don’t be surprised if you are interested in participating in the Hope for Homeowners program and you end up getting a loan modification or loan workout from your lender.