No, that is not a misprint. The $300 billion “Hope for Homeowners” program has saved 1 home to date. This is a case of the real reason for the defaults of homes being vastly different than the reasons we are being told. According to Government officials, folks are being foreclosed because:
1- The value of their homes has dropped (this one has never made sense to me)
2- Loans are resetting and they are a few hundred bucks a month short
3- Some other, less than permanent condition
4- Evil banks are kicking them out
In the five months since it has been in effect, HOPE has helped exactly one homeowner to avoid foreclosure. This despite Congress having made $300 billion available to back these loans and estimating that the program would benefit as many as 400,000 families.
“As it stands now, we’ve only gotten 752 applications,” said Federal Housing Authority spokesman Brian Sullivan. “And only insured one loan. Needless to say, the program isn’t working terribly well.”
Rep. Michael Castle (R – Del.), who sits on the House Financial Services Committee, agreed, calling HOPE “one of the most failed programs we’ve had in a long time.”
Nonetheless, the House of Representatives recently approved an updated version of HOPE as part of the bankruptcy-reform bill that is a keystone to President Obama’s Homeowner Affordability and Stabilization Plan. But it was no overhaul to the program; the changes are very subtle.
Castle is concerned that the new program will also be a waste of time and money. But Sen. Chris Dodd (D – Conn.), one of the chief architects of the earlier version of HOPE, supports keeping it in the bankruptcy bill, according to a source close to the negotiations. He hopes the changes will help convince more servicers to use the program.
This goes to the core of government intervention. The reason people are not applying for the program OR getting approved is not because they are not aware of it but because the conditions the government thinks are causing people to lose their homes aren’t vaid. Thus, the requirements to be eligible for the program are not being met because they have no relation to what is actually happening in the real world.
The overwhelming majority of foreclosures are people:
1- Unemployed
2- Took out a mortgage they could barely afford with little or no money down now can not afford
3- Took out a “pick a pay” loan that has reset at a level they have no hope of affording
4- Simply refuse to pay a $550k mortgage on a house now worth $375k
5- Speculators who were the “last fool in”
None of the above folks will qualify under any government program for “help”. Yet, we are constantly lead to believe these folks are the fringe of the problem and not the problem itself. Unfortunately, the converse is true.
The stunning lack of success of ANY government program to date is proof of that. The first FDIC intervention to halt foreclosures resulted in an over 50% rate of folks who where then delinquent again less than 6 months later. Translation? These folks should have not been helped in the first place.
There are unfortunately million of homeowners out there who are beyond help. The sooner the government realizes this, and admits it to us all the sooner they can focus efforts in the proper areas. Unfortunately, this will also run counter to the current populist rhetoric coming from Washington. Telling the 2 million homeowners about to be foreclosed on this year, “you did this to yourself and you need to deal with it yourself” will not win any votes among that sect.
But, alas it is far easier to blame the banks for them and initiate ineffective programs with catchy titles that play well on the nightly news.
Disclosure (“none” means no position):