Amidst all the chaos surrounding the $700 billion Wall Street bailout plan, the federal government's other housing rescue program quietly opened for business Wednesday.
But will any mortgage servicers come knocking?
The Federal Housing Administration unveiled its $300 billion Hope for Homeowners program, which allows struggling borrowers to refinance into more affordable mortgages backed by the federal government. The legislation, which was signed into law in late July, was hotly debated for months on Capitol Hill with Democrats supporting it and Republicans opposed.
Before the so-called Wall Street bailout emerged, this FHA program was the federal government's answer to the mortgage crisis. It was seen as a primary means to stemming the foreclosure tide and stabilizing the housing market. ...
Banks, however, didn't receive the program's details from the FHA until Wednesday, and say it will likely be weeks before they can offer it to their customers.
Even then, lenders probably won't rush to participate in the program, which is voluntary, since it requires them to take a pretty significant losses on the loan principal in most cases. Instead, banks have said that they'd prefer to use their own mortgage modification programs where they can better control the terms. ...
The problem is that the Hope for Homeowners program requires banks to reduce the loan's principal to 90% of a home's current appraised value, which is likely to be much less than the owner paid for it. Lenders prefer to freeze or cut interest rates so they can at least recover the original amount of the loan, said Tom Kelly, spokesman for JPMorgan Chase...
"You lock in your loss," Kelly said, by reducing loan principal.
Banks might turn to Hope for Homeownership if they feel the loan is hopeless and just want to get rid of it, he continued.
Lenders also won't be pleased with the new home appraisals, which will show them just how underwater their borrowers are, said James Gaines, research economist at the Real Estate center at Texas A&M University.
He doesn't see a lot of lenders flocking to the program.
Friday, October 03, 2008
Oh yeah, that other bailout!
In case everyone forgot, Congress already enacted one bailout months ago: