The Hope for Homeowners program was created by Congress last July and started implementation last October 1, 2008 through the Federal Housing Administration. It was meant to be an effective tool by the U.S government to tackle the main causes of the current financial crisis which basically boils down to the astronomical numbers of delinquent mortgage payments and the millions of homes in danger of foreclosures.
With a $300 billion fund approved by Congress was given to the U.S. Department of Housing and Urban Development to effectively implement the program and stem the flow of foreclosure homes. However, due to the strict requirements and guidelines that wrapped the program in red tape, few homeowners have actually signed since it started operation in October. With even fewer applications from homeowners facing foreclosures in the works, the program is expected to go bust.
Currently, the Hope for Homeowners program requires lenders and servicers to issue a strict write-down on their mortgages which the Federal Housing Administration has set to 90 percent of the foreclosure homes’ appraised value.
This will be an automatic 10 percent loss to the lenders, which could actually be more due to the heavily reduced market values of foreclosure properties. This strict requirement attracted little support from lenders. With lenders not cashing in, homeowners will not out their trust in the program.
Facing this predicament, the Housing and Urban Development would have to modify its rules and create more incentives to attract more lender participation and get homeowners facing foreclosures to participate. Under the new set of rules, the Home for Homeowners program will insure loans even as little as 3.5 percent write-off from their original values.
Loans will also be extended from 30 years to up to 40 years. Investors will also receive up-front payments as incentives to waive their interest in these mortgages. HUD policy makers stated that although these changes are not perfect, it can surely get the ball rolling.
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