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Time To End The FHA’s Hope for Homeowners

by Peter G. Miller
May 11th, 2009

It’s time to dump FHA’s Hope for Homeowners program.

The plan was launched last October with high hopes but little sense. The idea was to refinance troubled mortgages with FHA loans, but to participate borrowers had to obtain huge and costly concessions from lenders. Lenders, as you might guess, were not thrilled with the idea and the result was a virtual nationwide boycott of the program. HUD reports that as of April 15th it has received 888 H4H applications — and approved just one.

The Hope for Homeowners concept was hobbled from day one because Congress could not craft a program which was satisfying to the banking industry — you remember, the very same folks who got us into this mess in the first place. Indeed, President Bush threatened to veto any plan with the possibility of value. The result is now a program with $300 billion in funding that has largely been un-spent.

Your Government At Work

I say the money was largely unspent because, in fact, HUD under the last Administration managed to gnaw through $29.5 million to administer the Hope for Homeowners program. Yup, that’s right, that’s $29.5 million in costs per refinancing approval under the program.

In contrast we now have some real numbers and real results from a program that shows some signs of life: Ocwen Financial Corporation reports that it “completed 20,651 loan modifications despite a slowdown in late March as additional details and specific guidance related to the Home Affordable Modification Plan (HMP) emerged.” This is the program funded with $75 billion under the Obama Administration.

Ocwen, of course, is just one lender. There are huge numbers of lenders nationwide participating under the Home Affordable Modification Plan. It would be great to get some total numbers for the program.

Savings

The good news, of course, is that if we’re not going to spend $300 billion on the Hope for Homeowners plan then we may as well do something useful with the money. We could restore the FHA reserve fund by replacing money taken from it and delivered to the Treasury during the past eight years — that’s about $14 billion plus interest. We could lower FHA mortgage insurance premiums to make the program more attractive and affordable. We could expand the FHA program to bring back downpayment assistance plans. We could again make the FHA plan into a mutual insurance program as it was between 1930s and 2004. As a mutual insurance program unused premiums were refunded to borrowers and not just given to the Treasury Department.

The end result is that of the $300 billion we might want to use $25 billion for the FHA. The remaining $275 billion in savings could be used by the government to reduce its debt, to audit every “nontraditional” loan that has been foreclosed during the past three years and every foreclosed loan that relied on a stated-income loan application.

Finally, the people would get something for their money.

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