HUD Loan Modification Program Called A Failure

None other than the Secretary of Housing and Urban Development has declared the HUD loan modification program, known as Hope for Homeowners, to be a failure.   Steve Preston, HUD Secretary , blamed Congress for the program’s failure.  “What people don’t understand is that this program was designed to the detail by Congress”.

The Hope program,originally expected to help almost half a million people, has had only around 300 applications since its launch.   The chairman of the House Financial Services Committee blamed the Bush administration for opposing features of the bill that would have made it acceptable to lenders and easy to use by homeowners in default on their mortgages.   There have been calls by others on Capital Hill to use a portion of the TARP funds to ease and expand the Hope program.

In theory, the Hope program would have been beneficial to both borrower and lender by turning a defaulted loan into a performing loan.  It was structured to refinance a homeowner into a 30 year fixed rate mortgage insured by the FHA.

In reality, features of the Hope program seemed to have been designed to make it unattractive to both borrower and lender.  Specific provisions that created problems and made the program basically unworkable for all parties were as follows:

  • there was no obligation on the part of lenders to participate
  • the FHA would only insure  a new loan for up to 90% of the homes value.  Cash strapped borrowers had no way of coming up with the cash for the shortfall on what was owed.  For example, a homeowner owing $150k on a house now appraised at $100k could get a new low rate mortgage of $90,000 but only if he could come up with the $60k balance due on the original loan.   Someone with $60,000 available would probably not be in default on the mortgage.   The only other option to bringing $60,000 cash to closing was to request that the lender write down the loan balance to $90,000, which most lenders politely declined to do.
  • in order to qualify for the Hope loan, borrowers had to sign a statement testifying to the fact that all of the information they provided on their original loan application was accurate.  With the large number of stated income loans done in the past, many borrowers could not sign such a statement.
  • fees were to be assessed on any homeowner refinancing under the Hope program, monies that many homeowners did not have.
  • there were also limitations on the allowable debt to income ratio on the new loan in order to qualify.  Many would not have qualified even under the reduced loan amount and lower payment.
  • since the government was sharing with the original lender a portion of the losses on the refinance and loan write down, a portion of any future price appreciation upon sale by the homeowner would be due to the government

The amount of the new loan allowed under the Hope program and insured by the FHA has now been raised to 96.5% in an effort to make a refinance more appealing to the original mortgage lender.

Additional change to the Hope program are expected after the new administration takes over in January.

12 Responses to “HUD Loan Modification Program Called A Failure”

  1. This is very similar for people having to refinance now. I am be stuck with fines for re-financing, I HAVE to escrow my insurance and taxes. The mortgage lender fees are outrageous. I have been quoted $10,000 to refinance. This is only benefiting the banks that we bailed out… I am thinking about not refinancing, because of all of this crap…Our leaders/Congress need to come out of their crystal castle and see how the rest of the country lives… If they don’t quickly fix this, then there will be no recovery…

  2. I say Congress just step back, and let HUD and ACORN come up with a plan and just implement that.

  3. I need to refinance or remodify my loan to make my home more affordable

  4. I am a loss mitigation specialist and the way it is going now, lenders voluntary modification is only 8% of the time. If the government cannot force the lender to cooperate, how much more the borrower, not even loss mitigation experts so but a lawsuit can. The lender will just drag and delay and enjoy the late fees.
    So we decided that we go to the “lawsuit” strategy. After all, majority of these loans had predatory issues and doing this, the lender will work on your modificatiion. Then you get a better leverage. We have a complete package of loan modif and lawsuit.

  5. In June of 2004< I purchased an overpriced home (by today’s standards) using an ARM which was supposed to go up “little if at all” for at least five years. You all know this story well. It skyrocketed the first year as property values rapidly declined. That was coupled with forced retirement. If that wasn’t bad enough, the City of Tampa under Mayor Pam Iorio cheated us out of 26% of the pension we were “guaranteed” to receive by the contract under which we retired. To rub salt in the wounds, I was informed by Social Security for ten years prior that my benefits would be $1895.00 monthly. When I went to sign up for them they informed me they would only be $395 a month. Why even though I had contributed through second and third jobs allthose years? Because I had that City pension, which required donations as high as 19% of my pay at one time. I secured a fixed rate of 6.77% for 30 years through Wachovia a while back that requires taking from whatever savings weren’t lost when stocks bottomed out. I want Wachovia to modify my loan to 4.5% (5th/3rd Bank states they will give me that rate if I put up $11,000 up front. I believe Wachovia can give me a 15 year fixed at 4.5% without all those costs 5th/3rd wants to charge. Sound reasonable? How much did Wachovia’s parent company, Wells Fargo receive from our govt. for this program? Respectfully, Pete Botto

  6. Give the Homeowners the money. They know what to do with it.

  7. So I received a call today from Wells Fargo that my loan modification was denied because my mortgage payment was less than 37% of my total monthly income. I explained to them that I have a 2nd mortgage, through Wells Fargo, that increase my mortgage to above 45 percent of my monthly income. There response was this . . . “We do not take your second loan into consideration when calculating your monthly mortgage. That is a seperate department.” I was floored! When I bought my home the 1st and 2nd loan came hand and hand. But now they are suddenly two seperate departments? Wells Fargo is a greedy, crooked company. Shame on them. Shame on the mortgage industry.

  8. The federal government is now pressuring lenders to help homeowners do loan modifications. Attorneys and 3rd party company’s are charging outrageous fees to do these for the homeowners and the homeowners are not equipped with the right tools to do it themselves. I can show you a program that will give you all the tools and support you need to do the loan mod yourself without paying those high attorney fees. Let me show you how.
    Ingrid Smith
    888-242-1444 x 134

  9. My husband was hurt on the job 2 summers ago and we still are so close to loosing everything. We have hired 2 companys to help us and they have both taken our money and ran. Total lose to modification company 2500.00. You would think we would learn. My husband and I saved for 13 years to build a family home and in seconds our financial situation changed. We are required by law to carry insurance that is not only exspensive it does nothing to help the business owner and their family. Second we are paying for a piece of paper only, we don’t even have employee’s to cover but we must have these pieces of paper to be in business. I am a teacher and now my job is on the chopping block. We just want to save our home. We just want someone to be honest with us and tell us what our rights are and what to do. We know everyone elses rights but what are ours. My husband is 47 years old and has paid taxes and every other thing required by law never draw unemployment, I am 40 and have never had any assistance either. When do good honest hard working people get help? When?

  10. The banks are not trying to help by modifying these morgages. My mortgager US Bank has drug their feet in processing my request for modification of my mortgage. I have filed for modification 4 times with them and each time they say they need the same paperwork sent them. I received a letter saying that I do not qualify for modification because I vacated the property however, I requested approval from them to seek employment outside the state and return on a weekly basis. I was approved to do this but when I was on a job interview in NC they changed the locks on my house and closed my file without informing me. These banks do not want to work with the homeowners, they just want the tax payers bailout.

  11. My name is joigmar, and I am helping a friend of mine to do his mod, he don”t speak English, his wife is very ill reason why can’t work full time, I’ve been doing all i could but i haven’t found the right direction to make it right. since i am new in this computer thing i will appreciate you help me to find the right track to stop this bank keep on abusing of people like us. IN ADVANCE MY THANKS. JOIGMAR ALBAN.

  12. I applied for a Loan Mod through the HAMP with Wells Fargo. I was instructed NOT to pay my mortgage as soon as I started the process, which I couldn’t do anyway (that’s why I need a loan mod!). After 3 months of waiting, Wells Fargo told me I need to pay about $2,000 per month for the next 3 months while they “consider” whether or not they will give me the modification. That is ridiculous! If I could afford the 2,00 per month (which is only $30 less than my mortgage), I wouldn’t be applying for a modification! I guess the bank is more interested in foreclosing on my home than helping me keep it. Typical government “program” – ineffective and a waste of time!

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