Roland Carillo, Manager of Van Dyke Mortgage in North Carolina wrote this blog that more or less agrees with what I said in October that caused a pretty heated exchange. In late November I also went into the changes Roland talks about here. All in all, the only loans I know of being made under the H4H program are those being made "in house." In other words, companies like Wells Fargo will only make a H4H loan to one they already own. Even with the changes, H4H is not showing much progress in helping people.
I normally close out comments on a re-blog, but this one will stay open. This is a subject I have been very vocal on and expect others should have the same opportunity. Also, feel free to post on Roland's original blog. Thanks for your comments!
A few months ago while testifying before Congress, lenders praised the government's foreclosure prevention program but indicated that they preferred to use their own modification programs. As part of the housing rescue bill passed by Congress in July (not to be confused with the bailout bill passed in October), homeowners in trouble have been able to refinance their mortgages with the backing of the Federal Housing Authority (FHA) starting October 1st.
However, after 8 weeks fewer than 100 applications have been made for the Hope for Homeowners program. A main reason lender's are not enthusiastic is that the program calls for them to reduce loan balances to 90% of a home's current market value. In addition, the lender has to pay an upfront mortgage insurance fee of 3% of the loan balance to the FHA.
A Senior Vice President for JP Morgan Chase Home Lending, testified about the drawbacks of Hope for Homeowners. "Under the Program, [investors in the loans] will take a loss when the principal balance is written down," she testified, adding that they won't have a chance to make up that loss if home prices recover. Sheehan added that Chase can help many borrowers' by reducing their interest rates, thereby making their monthly payments more affordable.
Other lenders such as Bank of America, Wells Fargo and IndyMac (which was taken over by the FDIC in July) agreed and stated that they prefer to use the FHA program as just one of several options. When directly asked whether the program would be considered a last resort, all the members of the panel agreed that it would be.
The bank executives said that their responsibility to maximize profits for the investors would probably limit the number of cases in which the Hope for Homeowners program would be used. All of the lenders also stressed that their efforts with loan modification programs and the increasing number of workouts that they have been doing.
Because of this disappointing response, the US Housing and Urban Development Secretary Preston announced that major changes were being made to help more home borrowers. The major change is increasing the loan to value to 96.5% from the previous 90% for some situations. This means that lenders will not have to write down the balances as much and make them more likely to participate in the program. Other changes include changing the way 2nd mortgage holders are paid off, making the process simpler and again increasing the chances that lenders will assist home owners.
Together, these changes will hopefully help more homeowners avoid foreclosure and offer another solution if a loan modification alone will not work. Despite these relaxed terms, the FHA will still use the same standards to ensure that home owners will have enough income and the ability to repay the loans. Although its mission is to help provide affordable financing, the FHA needs to make sure that it does so in a responsible way that is sustainable.
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Roland Carrillo, PhD
Branch Manager
VanDyk Mortgage in Cary, NC
Email: rjcarrillo@gmail.com
Website: http://www.mymortgageanalysis.com/Our branch specializes in affordable lending options including FHA / VA and the Community Heros program. As both a banker and a broker, you have access to a full menu of products including all Fannie Mae and Freddie Mac Conforming loans, Reverse, Jumbo and Commercial financing on a variety of property types. We are located in Cary, North Carolina and are within easy reach of the entire RTP Area including Wake, Durham and Orange Counties.
I think the money that was supposed to be used for such programs has been used in other places that the government hadn't intended. As much as I hate government intervention, something needs to be done here, because the banks certainly aren't helping themselves. OK, they are helping themselves to our money!
Todd - The first time that I heard that the big banks were using the TARP funds to buy smaller banks, I was not a happy camper. I think the whole program has a stench surrounding it that I am not sure will ever go away.
I'm glad you reblogged this. I remember that debate where you got some pretty heated comments from those that thought the H4H was great because the first lienholder would get a share of the equity appreciation once the homeowners sold the home and you insisted this was not the case.
As we can see from this quote, "Under the Program, [investors in the loans] will take a loss when the principal balance is written down," she testified, adding that they won't have a chance to make up that loss if home prices recover. you were indeed correct.
Thanks Michelle, sometimes you get it right. Now, if we could just get something working properly.
So when is this going into effect? And how are they going to entice second mortgage holders to participate? Are they going to cut in the seconds on future equity?
Elizabeth - It is in effect now and the way I understand it, the 2nd mortgage holders can now get a small payment out of the refinance but nothing later. I don't see it working either, but I could be wrong because the first mortgage holders now have more reason to participate than they did previously. I am waiting for the other shoe to drop.....again.
Hi Fred,
I am still wondering how this whole thing is going to play out.
Current loan modifications are defaulting at nearly 60% over the first 8 months.
There are millions of other Americans who can't even get a loan modified in the first place.
Short of the government buying every mortgage and writing down principle, I don't see a viable solution - not that I am advocating for that as it would cost too much.
Mark - I don't have a solution. I think that modification is the best answer, but if the rate of default on mods are as high as you say, that doesn't sound so good either. Where are you getting those numbers? I haven't seen them.