For FHASecure, a Quiet End Nears
A Bush administration program originally designed as a refinancing option for severely delinquent subprime mortgage borrowers is likely to meet a quiet end as 2008 ticks off its remaining days, a source at the U.S. Department of Housing and Urban Development confirmed to HousingWire late Tuesday. The once highly-hyped program never really lived up to its original billing, and eventually became a catch-all for refinancing any "at-risk" borrowers as the mortgage crisis outgrew its original boundaries.
National Mortgage News first reported on the likely demise of the program earlier this week, citing unnamed industry sources.
HW's source at HUD said the program had become "something of an albatross" and duplicative in the face of the recently-legislated Hope for Homeowners program, which casts an allegedly broader net and serves the same purpose. "The thinking is probably that there isn't a need for two FHA-led programs for troubled borrowers," said the source, who asked not to be named in this story. "Pick one, and make it work."
When FHASecure was launched in late Aug. of 2007, administration officials suggested at the time that the program could help 240,000 delinquent subprime mortgage holders avoid foreclosure. But by December of last year, four months after its introduction, the program had only endorsed 266 loans for borrowers that were delinquent at the time of refinancing, forcing HUD officials to redefine the program with a wider net for any at-risk borrower, delinquent or not. HUD officials have maintained steadfastly that such a focus was always the intent of FHASecure.
But the program never seemed to gain much traction with key Democratic lawmakers, who pushed to create the Hope for Homeowners program that went into effect the past October (with similar dismal numbers at the outset, too). Part of that was because the Bush administration attempted to leverage FHASecure as a bargaining chip during negotiations over the Emergency Economic Stabilization Act of 2008, suggesting that the program could handle at-risk and underwater borrowers without the need for a $300 billion expansion to the FHA program under the H4H proposal.
While Congress was haggling over the housing bailout package, the Bush administration unveiled an expansion of the FHASecure program designed to make it easier for underwater borrowers to participate. Assistant secretary for housing Brian Montgomery said the revised program would help "hundred of thousands of borrowers" at a hearing of the House Financial Services Committee on April 9; the official estimate at HUD was that 500,000 additional borrowers would be helped by insuring refinanced mortgages for borrowers who were up to 90 days delinquent, or those who receive a voluntary mortgage principal write-down from their lender. The original FHASecure program had excluded both groups.
On May 19, HUD officials again touted the program, suggesting that the Hope for Homeowners program likely wasn't needed to help at-risk homeowners.
That's not to say H4H has been anything close to a resounding success on its own account, either. HousingWire first reported on Oct. 31 that just 42 mortgage applications were filed under the H4H program during the first two weeks in was in place, and none were endorsed; this came after legislators had warned servicers sternly not to foreclose on loans that might qualify for the program. Through Dec. 18, just 312 applications had been received for the program, leading current HUD chief Steve Preston to slam the program as ineffective and the fault of a Democratic Congress for forcing implementation of such an unwieldy program.
“What most people don’t understand is that this program was designed to the detail by Congress,” Preston told the Washington Post in an interview. “Congress dotted the i’s and crossed the t’s for us, and unfortunately it has made this program tough to use.”
Of course, Democratic lawmakers have since contended publicly that the Bush White House forced them to water down H4H, in part by flaunting FHASecure as a viable alternative. "The administration was critical of the program and kept putting pressure on us to make it cheaper and more restrictive," House Financial Services Committee chairman Barney Frank (D-MA) told the Washington Post. "If it hadn’t been for the Bush administration’s opposition, we would have written it in a better way in the first place.”
On Nov. 20, HUD relaxed its criteria for loans under the program, raising the loan to value ratio for eligible loans from 90 to 96.5 percent for some H4H loans.
The bickering over Hope for Homeowners comes as Congress appears set to consider yet another round of homeowner aid, this time tied to future provisioning of funding for the Treasury’s Troubled Asset Relief Program. The first $350 billion of the $700 billion allocated to the program has already been used; House Speaker Nancy Pelosi (D-CA) has that any effort by Bush administration officials to access further funding via the TARP must come with a plan to help troubled homeowners stay in their home.
“It was very clearly spelled out in the initial legislation that funds would be used for mortgage foreclosure forbearance,” she said at a news conference recently.
We'd assume that such an ultimatum will hold even if a Democratic administration requests those funds, after Jan. 20 of next year. The only question that anyone should ask at this point, however, seems to be this: is the third time really the charm here? Or is Congress trying to solve something that is perhaps best left to its own devices?
Write to Paul Jackson at firstname.lastname@example.org.
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