The US government and the nation's largest banks have teamed up to stem the rising tide of foreclosures and mortgage delinquencies. However, statistics from July show that it is going to be tough to outpace escalating borrower troubles.

Hope Now Provides Mortgage Assistance

The Hope Now initiative, backed by the White House was created to provide broad government refinance and mortgage work-out assistance to homeowners struggling with their current mortgage. Not unlike the program recently announced by the FDIC to help borrowers at the recently failed IndyMac Bank, most of the help comes in the form of loan modifications.

Mortgage loan modifications are individual negotiations between the borrower and the mortgage lender that typically result in revised payment, rate, terms, or a combination.

The Hope Now industry group reports that 192,000 borrowers in July received some form of loan modification, up 6 percent from the 181,000 in the previous month.

Foreclosures Still Rise

Despite clear progress the current process can not keep pace with rising foreclosure rates. Foreclosures in July were up to 92,000 sales--a steep increase from 82,000 sales per month in June.

Government leaders like FDIC Chairman Sheila C. Bair advocate "a systematic and streamlined approach to loan modifications to put borrowers into long-term, sustainable mortgages." The hope, according to FDIC officials is that this program will be come an industry model.

However, some private mortgage industry professionals fear this would put too much risk back into the banking institutions--citing that some of these loans are the result of fraud and foreclosure is the best outcome.

Experts at loan modifications, like Michael Geffre of Entrust, also remind us that "loan modifications are discrete negotiations between borrower and lender. This means each is different and requires unique processing and documentation."

Consequently, the government is likely to get push back from banks that have to accept the modifications to their loans--making loan modifications unlikely to become as streamlined as mortgage refinancing.

Refinance Assistance Becomes Harder

Loan modifications may continue to be the preferred method of aiding these stumbling borrowers as mortgage refinance rates begin to quickly rise.

Although the original government plan seemed to hinge on government refinance assistance, primarily in the form of HUD and FHA refinance loans--rates may push this approach out of the reach of many borrowers.

Hope Now Industry Group

Regardless of the end plan it is certain that the partnership between the government and the Hope Now industry group, consisting of Bank of America, Citigroup, Washington Mutual, and Wells Fargo is going to be significant to the final solution--if any--for struggling homeowners.

Published on August 28, 2008