Tags: loan | modification | failure

Loan Mod Program Failing Badly

By    |   Tuesday, 23 Dec 2008 12:38 PM

The government's loan modification program is a dismal failure, and Congress is to blame, says HUD Secretary Steve Preston.

Hope Now, previously lauded as the centerpiece of economic recovery, was supposed to modify the loans of 400,000 homeowners and help them avoid foreclosure.

Instead, it's only helped 312 homeowners since it was launched in October.

The problem is that Congress got its busy hands over-involved in the program's details, Preston told The Washington Post. As it is, the loan modification effort is unworkable. Both lenders and borrowers feel its requirements are too restrictive and onerous, says Preston.

Under the program, the FHA can insure loans up to 90 percent of the home's value. But, that rules out many borrowers in areas where values have plummeted. Lenders would have to slash the mortgage amounts, but they are unwilling to do that.

Congress recently gave HUD the go-ahead to increase the level to 96.5 percent of the home's value. That was a good move, but its impact is so far unclear, Preston told the newspaper.

Borrowers must pay high interest rates and fees, including a 3 percent upfront insurance premium and 1.5 percent yearly premium. They have to provide two years of financial records and sign a statement that they didn't give false information on their first loan application. Those requirements could be impossible to meet for many stated-income borrowers.

Borrowers also dislike the program's requirement to share their home equity and price appreciation with the FHA.

According to HUD, FHA would get anywhere from 100 percent to 50 percent of the homeowner's equity when the house is sold or refinanced, depending on how long the mortgage is held. Plus, the FHA gets half the appreciation, or increase in value, when the home is sold or refinanced, no matter how long the mortgage is held.

Rep. Barney Frank (D-Mass.), who was instrumental in enacting the program, blames the Bush administration for the program's confusing provisions. Congress had to restrict the program to win over the administration, which had opposed the loan modification plan.

"If it hadn't been for the Bush administration's opposition, we could have written it in a better way in the first place," Barney told the Post.

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The government's loan modification program is a dismal failure, and Congress is to blame, says HUD Secretary Steve Preston. Hope Now, previously lauded as the centerpiece of economic recovery, was supposed to modify the loans of 400,000 homeowners and help them avoid...
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2008-38-23
Tuesday, 23 Dec 2008 12:38 PM
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