Borrowers Desperate For Help

Thousands of homeowners facing foreclosure are turning to the Bush Administration’s foreclosure relief plan for help. HOPE NOW Alliance, a coalition of lenders and nonprofits which plays a central role in the plan, has noticed a significant increase in calls since the campaign was officially announced in the media. In each of the past two quarters, the number of calls has doubled and these days staffers have to deal with up to 3,000 calls a day, up from 100 calls per day in June 2006. The demand is so high that the foundation has tripled its staff, but hiring more counselors is hard, because HOPE NOW cannot offer competitive remuneration. Despite all the blasting the plan received in the media, desperate borrowers are calling by the thousands, and why shouldn’t they: if they get some mortgage relief – perfect, if not – they have nothing to lose by asking for help.

Fannie Mae said that it will reimburse mortgage servicing companies which refer delinquent borrowers to the HOPE counseling hotline, adding to demand for the service. The HOPE NOW toll-free number is 1-888-995-HOPE. It is available 24 hours a day and provides counseling in multiple languages. Now we’ll all sit and watch how all this unwinds, because it’s the best most of us can do – apart from, probably, writing angry comments about irresponsible borrowers/lenders and about using taxpayers’ money to bail out speculators. Oh, in fact Paulson repeatedly denied the possibility of the latter. However, he did say something about the economy and the housing market, but he wasn’t really optimistic: “there is no single or simple solution that will undo the excesses of the last few years”. Sad but true.

FHA To Prohibit Seller Financing

The FHA is about to publish new rules that prohibit seller financed down payment assistance programs. With such programs, sellers can give money to charities, which, in turn, help buyers with their down payments, for a certain fee. The IRS has found that many of these deals are abusive to borrowers, because the fees are often included in the higher price charged. Studies have shown that borrowers using the assistance programs are twice as likely to default on their loans as those who don’t receive assistance. Because seller financing is involved in 30 to 50% of FHA loans, there’s some fear that the new rule will keep some of the borrowers out of the market. Officials at the Mortgage Bankers Association and the AmeriDream charity are against the ruling. The new rule will go into effect 30 days after publication.

“Creative financing” – the new way

Not so long ago Bank of America launched its “no fee” loan, which virtually waived mortgage insurance and fees for application, appraisal, loan origination, flood determination and several others. Borrowers are still required to pay some of the costs, and the interest rate is slightly higher than the average, but nevertheless Bank of Americas' terms are very, very competitive and officials claim that theirs is the best deal available.

Competitors, it seems, will follow the example. Washington Mutual now offers a flexible mortgage that allows borrowers to switch between fixed or adjustable rates without refinancing – at little or no cost. Credit unions are joining with a “home loan payment relief” loan, or HLPR. Like an adjustable-rate mortgage, it offers a reduced interest rate for the first two or three years, and then adjusts to a higher rate. Unlike an ARM, however, an HLPR is predictable, because the new rate is determined at the closing of the loan. The new rate equals the national average at the time of the initial loan, so borrowers know exactly what their payments will be long before their rate adjusts.

Eligibility for the new products is usually restricted to low- and moderate-income households and first-time homebuyers. Nevertheless, these products might at last offer the solution to subprime-lending troubles and a sensible way to finance home purchases. No more double-digit profits for lenders, but sound, smart loans that don’t take advantage of borrowers. More than 50 loan providers are out of business already, the rest are learning what it takes to survive a housing downturn.