As we have documented here in the past, the recently launched H4H program was a colossal failure. There was an interesting article over at The Washington Independent that delved into why it was such a failure. There are three reasons listed:
1. The costs were too high to consumers
2. The program was voluntary so banks weren’t anxious to write off huge amounts of money when they could just wait and see if a better deal came along
3. The servicers of defaulting loans (third party companies hired to collect on mortgages after the mortgages are sold to investors as part of mortgage backed securities) were worried that if they went for and H4H deal instead of foreclosing they might get sued by the investors they work for so the went with the more familiar and lawsuit-immune route of foreclosures
We know from experience that #1 was not at all a reason for the failure of the program and anyone who says otherwise is out to lunch. People who are upside down and their homes and on the verge of foreclosure would have gladly accepted an H4H loan if one were available.
Reason #2 was and obvious problem because banks are always going to try to act in their own self interest. But reason #3 is a really interesting insight. It points out a structure and institutional problem that must be dealt with if the H4H program is to ever take off.
The other interesting idea is to relieve the already overworked and understaffed FHA department of the program. But I suspect they will need to fix problems 1-3 before that matters at all.
February 22nd, 2009 at 12:43 pm
I don’t believe there were only 300 applications for H4H. Our company alone had 500 applications and maybe, half still qualifies. I don’t understand why the Govt/FHA released this and just put this aside. In counties like San Joaquin, Sacramento, and Stanislaus, homeowners are either walking away or just can’t find the right help. In Mountain House, Ca, most homeowners owe 500k-800k and now the values are 200k-300k and the cost of living is ridiculous. There is no incentives to stay in these homes unless there is a principal reduction.
There was an investor who released their guidelines in January, but the guidelines are so strict. They wanted 12 months no mortgage lates, 600+fico, AND at least 5% closing costs of the new loan amount at 7%.
A miracle has to happen. Everyday they drag their feet, people are just giving up. It’s depressing to see foreclosure/auction signs every few houses in the central valley.