Homeowners: Still Hopeful, but Recovery Slow

One month after going live, Hope for Homeowners is making slow progress. Does this program lack what it takes to solve the foreclosure problem?

"Hope is the only universal liar who never loses his reputation for veracity," said politician Robert G. Ingersoll, who would get a hearty chuckle from seeing 21st century lawmakers name a loan workout program "Hope for Homeowners." True to its name, the program has stirred up much hope, but has yet to notch any meaningful gains against the foreclosure crisis.

Not quite something for everyone

The FHA's Hope for Homeowners, or H4H, became an option for at-risk homeowners on October 1st of this year. The program lays out a set of bargaining chips; lenders are encouraged to rework loans, and homeowners are given an opportunity to foot the bill without any cash upfront. Lenders can get FHA mortgage insurance by providing homeowners with affordable loans that are supported by the value of the underlying property. Homeowners pay to participate, but the bulk of the fees aren't due until the home is sold. On the surface, the program appears to be workable for both sides.

Unfortunately, this government assistance program isn't yet fueling a wave of loan modifications. The primary issue lies in the complexity of mortgage financing in this country; any solution that's going to be popular has to address the needs of the investor, as well as those of lender and borrower. And H4H doesn't do that.

Investors take the fall

H4H requires the lender to agree to write down any debt that's in excess of 90 percent of the home's value. If the mortgage was securitized and sold off to investors, those investors will take a loss when the debt is written off. Under H4H, the investor has no way to recover that money, even if the home's value goes back up again. Should that happen, only the FHA and homeowner can share in the gains. Also, participating homeowners are required to pay back all, or part, of the forgiven debt when the home is sold. But again, that money doesn't go to the lender or investor; it goes to the FHA.

Many want workouts; not everyone needs them

H4H's ramp-up may also be limited by the sheer number of people inquiring about the program. The FHA maintains a published list of about 150 participating lenders, who are fielding phone calls from thousands of homeowners who believe they need help. It's a time-consuming use of resources to sort through the inquiries to determine who qualifies and who doesn't.

The last obstacle H4H faces is the FHA's notoriously long lead time. Often, 45 to 60 days can pass between application and funding of government assistance.

We really won't be able to gauge the success of H4H until early next year. Supporters of the program are saying that there's still hope for Hope-although Robert Ingersoll probably wouldn't agree.