Banking Law

There are only two weeks to go until the event we've all been waiting for hits the mortgage world like Ike (the hurricane, not the dead president): The Hope for Homeowners Program.

At yesterday's hearing before the House Financial Services Committee, representatives of the nation's largest mortgage loan servicers were giggling like school girls and making goo-goo eyes at cute young male interns as a hormonal rush of pure ecstasy consumed them when they contemplated the impact of this once-in-an-epoch solution to all that ails the mortgage market. Oh, sorry, that was Barney Frank eye-balling the interns, not the mortgage servicing reps.

According to Housing Wire, the mortgage services were filled with inertia and not unbridled hope at the prospects of Hope for Homeowners.

The emerging consensus among those in the servicing trenches that spoke with HW, however, has been that the program will have less impact than legislators might hope. And that was clearly the undercurrent in committee testimony Wednesday from servicing executives, evident as much in what was said as it was in what wasn???t.

Steven Hemperly, senior vice president of real estate default servicing at CitiMortgage, Inc., went so far as to only mention the Hope for Homeowners program in his closing remarks to committee chairman Barney Frank (D-MA) and other House members. His only mention of the program: ???We look forward to the initiation of the Hope for Homeowners program and view it as a useful lending and servicing tool for struggling borrowers.???

While affirming Wells Fargo???s commitment to loss mitigation, execitive vice president Mary Coffin estimated that 30,000 to 40,000 borrowers might qualify for the Hope for Homeowners program. ???We will use this program where it is needed,??? she told House members.

Other servicers provided similar estimates, but said the total number of loans pushed to the program would likely end up being lower. ???We do believe, based on our experience of the last year and a half, that the numbers of borrowers who ultimately take advantage of the program could be lower than the number that preliminarily qualify, as there may be several crucial barriers to the program???s widespread use,??? said Molly Sheehan, a senior vice president at Chase Home Lending.

Bank of America loss mitigation head Michael Gross was the only servicer that noted that the company ??? which now owns mammoth Countrywide Financial???s mortgage servicing portfolio, and is the largest servicer in the nation ??? had actively engaged in forbearances thus far for borrowers the company believes will qualify under the program.

???We are proactively contacting these customers to confirm their eligibility for, and interest in, participating in the program,??? Gross said. ???Subject to investor consent and state procedural considerations, we will avoid completing foreclosure sales for the customers identified while the implementing regulations are being drafted.???

It figures that Bank of America would be blowing air kisses to the Committee. It's strapped on a Hazmat suit and is trying to clean up Countrywide's toxic waste. Even a program as weak as Hope for Homeowners is appreciated, even if all it does is waft a whiff of "eau du rose-colored-glasses" over a field of rotting beached whale carcasses. After all, when it comes to federal legislation, it's the thought that counts, right?

As noted by Housing Wire's Paul Jackson, a big damper on the servicers' sense of enthusiasm might be the fact that with only of a couple of weeks to go, HUD hasn't released the details about how the program will work. Knowledgeable readers will recall that HUD initially announced that it would take until next October to get the rules issued, and only backed down when folks like Barney Frank and Chris Dodd threatened to sever HUD's body parts with a rusty razor; and not in a nice way, either. It's not surprising that if in August you think it will take a year to implement the program, only 30 days later you might still be scrambling like John Edwards after a passing ambulance to get the rules in place. Perversely, I hope that HUD's not up and running on October 1, because I simply like to watch cage fighting, especially when it involves politician versus bureaucrat in a grudge match to the death. There's always the hope that both will be maimed.

A major fly in Hope for Homeowners' mortgage burn ointment is the problem of junior lienholders who ask, quite correctly, "What's in it for me?"

HUD???s [Brian] Montgomery also alluded to perhaps the program???s largest sticking point: second liens. ???One of the greatest challenges to successful loan modifications is obtaining the consent of all existing lien holders, including the holders of junior mortgages,??? he said. He suggested HUD was close to proposing rules under the HFH program that would have second lien holders share in the government???s interest in the property.

That is clearly something that doesn???t sit well with first lien holders, particularly on portfolioed loans. Chase???s Sheehan said that ???it seems counter intuitive that the second lien holder moves into a favored position in sharing future appreciation.???

???We believe it would enhance the success of the program were a similar incentive provided to the first lien holders,??? she suggested. First lien holders must write-off significant principal on a troubled loan ??? down to 90 percent of current LTV ??? and must contribute the borrower???s initial 3 percent FHA mortgage insurance premium.

Montgomery also warned that loans under FHA???s Hope for Homeowners program would have a higher interest rate than other comparable loan programs ??? which would certainly seem to undermine the program???s intent to make mortgages more affordable for troubled borrowers.

???Given the distressed nature of the borrowers likely to participate in the program, as well as the 1.5 percent annual mortgage insurance premium mandated for HOPE for Homeowner loans, early indications are that HOPE for Homeowner loans likely will have a higher interest rate than other FHA-insured products, including FHASecure, because they will cost more than standard FHA loans,??? he said.

This program looks like it's going to storm out of the gate like Secretariat on steroids, doesn't it?

We'll see, soon enough.