Banking Law

Is Hope For Homeowners Hopeless?

Peter Miller of FHA Mortgage Guide thinks that "it's a disgrace" that the FHA's Hope for Homeowners program has thus far proved to be a flop. Well, not merely one of those routine flops, the kind that hits the ground with a gentle thud. No, thus far, the H4H plan has been the sort of flop that sounds like a watermelon hitting solid pavement after being dropped from the roof of a ten-story parking garage.

The latest numbers from HUD are stunning: For the first 15 days of October just 49 borrowers with delinquent conventional loans were able to refinance with FHA mortgages. That?s less than one per state.

While Miller points his finger in the direction of a hostile White House, Housing Wire thinks the real problems lie more with the fact that market participants think that the loan program stinks. Not only stinks, actually, but, as the weight lifters from Staten Island who roomed across the hall from me my freshman year in college used to designate a really bad idea, "stinks on ice."

In reality, servicers and investors are reportedly leery of taking the 13 percent haircut relative to current LTV needed to get into a H4H loan (that extra three percent is an up-front insurance premium).

Worse yet, smaller, independent mortgage bankers ? the so-called mid-tier lenders in the mortgage origination market ? now say they are finding it difficult to turn around and sell these refinanced loans to the large investors they work with on a consistent basis. Which means even if an investor or trustee agrees to take the loss and refinance a loan into the H4H program, there often isn?t a buyer on the other end willing to take the loan.

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Most mid-tier lenders operate via warehouse lines of credit: if they aren?t allowed to push the refinanced, FHA-insured, Hope for Homeowners loan through an available warehouse line, they can?t fund the deal, regardless of what happens on the front end of the process.

For their part, potential buyers appear hesitant to acquire what they see as the high risks associated with these refinanced debts, since participation in the program typically requires borrowers to be delinquent in the first place, according to one independent mortgage banker who asked not to be named in this story. ?It seems to us like they created a great program but nobody?s willing to step up to the plate and take a lead on it, to extend this to borrowers,? the source said.

It appears that while lenders are willing to consider a H4H haircut on loans in their own portfolio, they're not ecstatic about providing funding for wholesale channels to originate loans to borrowers who are poor credit risks and who aren't already indebted to the lender. This may be a temporary condition, or it may be an early indication that "Hope For Homeowners" will soon be renamed " False Hope For Homeowners."

Full post as published by Bank Lawyers Blog on November 04, 2008 (boomark / email).