Refinance: What Good Are All These Rescue Packages?

The House passed two such bills. The Senate is likely to pass one of its own.

What’s the use of them?

There’s a ton of free market criticism of Barney Frank’s bill.

The WSJ blasted in this week.

All these rescue packages seem wild-eyed and insufficiently planned and not terribly effective.

They’re getting chewed up from many quarters.

Won’t the market just sought things out on its own?

Here’s a report:

There are so many piecemeal plans operating such as Hope Now which is largely a product of many large mortgage servicers prodded into action by the Treasury Department; Project Lifeline, the increased dollar limit on conforming loans, dozens of state, local, and lender initiated programs, and so on, that it is hard to make any blanket assessment of performance, but a few initiatives stand out.

We have previously reported on Hope Now’s shortfall in results with troubled homeowners. In recent testimony before the House Financial Services Committee Subcommittee on Housing and Community Opportunity, Julia Gordon of the Center for Responsible Lending stated that foreclosures outranked loan modifications by three to one among program participants and that the majority of the loss mitigation work being undertaken is unlikely to lead to continued home ownership. Ms. Gordon quotes the vice-chair of Washington Mutual who helps to run Hope Now as saying that many of the homeowners who have sought the program’s assistance "will not receive long-term relief and could ultimately face higher costs."

Further, Ms. Gordon states, loan modifications have not reached the approximately 30 percent of recent subprime mortgages where the borrowers are "underwater," that is, who owe more than their house is worth and she quotes Fed Chairman Ben Bernanke that loan modifications involving reduction of principal have been rare.

As we noted here recently, the legislation to raise the ceiling on conventional loans so Fannie Mae and Freddie Mac can purchase more loans in expensive housing markets and FHA can insure the same has, so far, been a bust. Either the loans are not being offered by lenders or the premium interest rates and/or fees make them unappealing to borrowers.

The latest criticism is of FHA Secure. This program was originally expected to assist 60,000 delinquent borrowers and has, according to administration officials, assisted 150,000 people as of April. The catch is fewer than 2,000 of these homeowners were at risk of foreclosure. Most of the remainder who received help was homeowners who were making their mortgage payments on time.

FHA officials say that these people may have been anticipating problems in paying their mortgages and were able to head off trouble by participating in the program.

The New York Times quotes Senator Christopher J. Dodd (D-CT) as saying the program, while a good idea, "is not addressing the magnitude of the problem."

FHA Secure has undergone several modifications since it was initiated last August. Originally it was targeted at low-income homeowners who were delinquent on their mortgages because of interest rate increases on their adjustable rate mortgages. These borrowers, however, had to have been current on their mortgages prior to any interest rate increase. In April eligibility was broadened to include homeowners who fell behind in their obligations because of extenuating circumstances such as lost jobs or family illnesses even if their interest rates have not changed. Program officials estimated that this would allow an additional 100,000 people to refinance this year.

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (, he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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