Diary

Hi, I'm from the government and I'm here to help.

OK, so Congress comes into session and passes a measure that they say will help homeowners facing foreclosure. The call it “Hope for Homeowners”. To the tune of about $300,000,000,000.So, it’s been the law of the land for over a month now. And in that month, 77 lenders have signed up for the program. In that month, well, I’ll let Anthony Freed from Your Mortgage or Your Life tell you…

How about the dandy “Hope for Homeowners” program, designed to help more than 400,000 homeowners avoid foreclosure by making as much as $300 billion dollars available for the effort. What a fantastic idea, it would seem at first glance. Of course, the Devil really is in the details.

As of today, October 27, 2008 – nearly four weeks since the program was unveiled – a remarkable 79 people have applied for the program (Fox News 8-27-08).

Yes, 79 homeowners have been accepted (Fox News 8-27-08).

There are at least 77 banks participating in the program. I am not going to try to do that math in my head, but my best guess is that each of those banks has only helped about one homeowner avoid foreclosure on average in that 27 day period.

Got it? So far, a grand total of 79 people have applied for help. Wow. More from Anthony…

My first impression was that this had to be due to a simple lack of awareness by the public that such a program was available to them. Not the case at all I have found. The program has generated a great deal of interest from distressed homeowners since it was unveiled.

Lenders have been deluged with inquiries from interested borrowers, and the Congressional Budget Office has estimated that this program could help as many as 400,000 homeowners through September 2011, when the program ends.“Our phones have been going crazy,” said Anthony Logan, president of Group Capital Mortgage in Cerritos, Calif, a participating lender.

What’s the hold up? Why, it’s the program itself, which was designed almost certainly to fail. First of all, the program is completely voluntary for both the lenders and the participating banks. It also requires the lenders to forgive a portion of the original loan balance in an effort to bring the mortgage in line with the market and affordability for the borrower to enter a long term fixed mortgage.

Bottom line, Congress gets involved and creates a program that shifts losses from the parties who willingly entered into a contract to their lenders. There was no real discussion of the details of this program, I suspect the only discussions on Capitol Hill revolved around the good press the CongressJerks would get when they passed this abomination.

I’ve been saying that it would take five years for the housing/real estate/mortgage markets to settle out and normalize IF the feds stayed the hell out of it. And I’ve consistently guessed at least ten years if they got involved. We’ve got about eight years of the rollercoaster left.