You wonder why the government needs so many bailout programs? Right…because none of them work. Below is an excerpt from a friend and blogger Anthony Freed of Your Mortgage or Your Life.
While I knew from onset that there would be no way banks would write down principal balances to 90% or less of the value of their home and jeopardize their FHA approval by giving bad borrowers new loans, these numbers even shocked me. What pisses me off the most is the fanfare all of these programs bring about when announced. Time and time again we have heard about new programs that are suppose to save the world and each time they have been a failure. This is one of the next examples yet. -Best Mr Mortgage
How about the dandy “Hope for Homeowners” program, designed to help more than 400,000 homeowners avoid foreclosure by making as much as $300 billion dollars available for the effort. What a fantastic idea, it would seem at first glance. Of course, the Devil really is in the details.
As of today, October 27, 2008 – nearly four weeks since the program was unveiled – a remarkable 79 people have applied for the program (Fox News 8-27-08).
Yes, 79 homeowners have been accepted (Fox News 8-27-08).
There are at least 77 banks participating in the program. I am not going to try to do that math in my head, but my best guess is that each of those banks has only helped about one homeowner avoid foreclosure on average in that 27 day period.
With all of the poorly underwritten loans Countrywide booked – and the tens of billions of dollars in profits they made in the process – one would think they might be on the list of participating lenders. Not surprisingly, they are not. Although a unit of Bank of America now, there has been no indication they will assume the responsibility for modification of existing Countrywide loans.
My first impression was that this had to be due to a simple lack of awareness by the public that such a program was available to them. Not the case at all I have found. The program has generated a great deal of interest from distressed homeowners since it was unveiled.
Lenders have been deluged with inquiries from interested borrowers, and the Congressional Budget Office has estimated that this program could help as many as 400,000 homeowners through September 2011, when the program ends.
“Our phones have been going crazy,” said Anthony Logan, president of Group Capital Mortgage in Cerritos, Calif, a participating lender.
What’s the hold up? Why, it’s the program itself, which was designed almost certainly to fail. First of all, the program is completely voluntary for both the lenders and the participating banks. It also requires the lenders to forgive a portion of the original loan balance in an effort to bring the mortgage in line with the market and affordability for the borrower to enter a long term fixed mortgage.
It allows certain borrowers at risk of foreclosure to refinance into a 30- year fixed-rate loan insured by the Federal Housing Administration (FHA) if the current lender agrees to write down the existing loan to 90% of the home’s market value today. In plummeting areas such as California, if a lender holds a $500,000 mortgage and the home’s current appraisal comes in at $400,000, the lender would forgive $140,000 in all. Even before the program launched, lenders expressed concerns about the potentially enormous write downs they would face.
Incredibly, in the face of receiving the largest publicly funded bailout of private industry in history, supposedly caused by nonperforming securities backed by rapidly foreclosing mortgages, the banks themselves are refusing to use a portion of that bailout money to help alleviate the very circumstances that had predicated the public bailout in the first place.
“Refinancing into the new government-backed program requires your current lender’s approval. If the home’s value is less than the mortgage — which real estate data provider Zillow.com estimates applies to nearly one-third of American borrowers who bought in the last five years — the note’s owner must also agree to reduce the amount owed on the house to 90 percent of its current appraised value. If you owe $190,000 on a house that’s only worth that much, the bank would have to agree to reduce the loan to $171,000, giving up $19,000 in principal, plus interest.”
Meanwhile, two million families are expected to lose their homes to foreclosure in the next two years.
There is a serious leadership vacuum in this country, especially at the upper echelons of both government and business. Their priorities and policies are bankrupting our nation, and the close relationship between these private industries and our government regulatory agencies should be rigorously examined.
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