Hope for Homeowners, a program created by Congress to assist homeowners at risk of loan default and foreclosure that will allow some homeowners to refinance into more affordable FHA-insured mortgages, launched Wednesday.

An estimated 400,000 homeowners could avoid foreclosure through participation in this program, which is voluntary for lenders and is scheduled to run through Sept. 30, 2011.

That program is among an assortment of federal, state and industry efforts intended to stem the tide of foreclosures.

Under Hope for Homeowners, lenders will determine a homeowner’s eligibility and consider loan modifications to lower the monthly mortgage cost, and can also consider whether to take a loss on the difference between an existing loan and a new loan set at 90 percent of the home’s current appraised value.

Existing mortgages must be originated on or before Jan. 1, 2008, and existing mortgage payments as of March 1, 2008, must exceed 31 percent of the borrower’s gross monthly income, among other eligibility requirements.

The Emergency Economic Stabilization Act of 2008, a federal intervention plan to provide up to $700 billion to ease the credit crunch in the financial markets, provides some language changes to strengthen the Hope for Homeowners program "by expanding eligibility and increasing the tools" available through the U.S. Department of Housing and Urban Development, according to the announcement.

Mortgage servicers completed about 189,000 mortgage workouts in August, according to an announcement today by Hope Now, a private-sector alliance that is also seeking to reduce foreclosures.

Earlier this month, foreclosure data company RealtyTrac reported 303,879 foreclosure-related filings in August, which was the highest level since the company began issuing its monthly reports in January 2005 and represented a 27 percent year-over-year increase. But this year-over-year rate of growth was much lower than in previous months, when it had ranged between about 50 percent and 65 percent (see Inman News).

About 110,000 homeowners received loan repayment plans through Hope Now in August, while about 79,000 received loan modifications, according to the monthly report, and about 53 percent of homeowners with subprime loans who received workouts in August through the program got loan modifications.

State banking regulators, though, have questioned the effectiveness of the industry’s workout efforts (see Inman News), and a report by the U.S. Office of the Comptroller of the Currency raised questions about the accuracy of the number of borrowers who have actually been assisted by Hope Now servicers. And workouts in some cases may just delay — rather than prevent — foreclosures.

Repayment plans, which can allow deferred or rescheduled payments, are intended to allow borrowers to catch up on missed payments and become current on a loan while requiring that the loan be paid in full within the original maturity period. Modifications can involve a reduction in the interest rate, forgiveness of a part of the loan’s principal, or an extension of the loan’s maturity date.

The August rate was lower than the program’s record month of July, when Hope Now participants offered workout plans for about 192,000 borrowers.

About 1.1 million subprime loans were scheduled for a reset in interest rates from January 2008 to August 2008, and about 449,000 of the subprime ARM loans scheduled for reset during this period "were paid in full when the homeowner refinanced the loan or sold the property," according to the Hope Now announcement.

Hope Now includes mortgage services, counselors and other mortgage-market participants — the program and other broader efforts by the mortgage industry reportedly have helped about 2.3 million homeowners avoid foreclosure in the past 14 months, according to the announcement, and 914,390 foreclosure sales during this period (391,781 of these sales represent foreclosures among prime loans).

Another option for homeowners is FHASecure, a program that offers a refinancing option into an FHA-insured mortgage for some homeowners in order to lower monthly mortgage payments. The program is intended for homeowners with non-FHA ARM loans who are current or delinquent on the mortgage payments. Under FHASecure, lenders cannot automatically disqualify homeowners based on loan delinquency, "and the lender may offer you a second mortgage to make up the difference between the value of your property and what you owe."

In May, the Bush administration announced an expansion of the FHASecure program that went into effect on July 14.


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