HASP – Homeowner Affordability and Stability Plan Summary
More than 50,000 homes were posted for foreclosure in the Dallas-Fort Worth area in 2008. But fortunately, Texans, and especially those in established neighborhoods like Preston Hollow and Northwood Hills, have not been as hard hit as homeowners in most other states. The major reason for this is that our values have not taken a nosedive like those in states like California, Arizona, Florida and Nevada.
President Obama took the first step toward bailing out homeowners Wednesday by committing billions of dollars to enable responsible borrowers to refinance at lower interest rates, by sidestepping the current rule that requires at least 20% equity in the home. This Affordability initiative is supposed to help 4 to 5 million Americans.
The second part of the plan is aimed at millions of workers who have lost their jobs, or had their hours cut back. Nearly 5 million people have applied for unemployment benefits. The Homeowner Stability Initiative is designed to reduce homeowners’ monthly mortgage payments, through loan modification. The lender would be responsible for bringing down interest rates so that the borrower’s monthly payment is no more than 38% of his or her income. Next, the initiative would match further reductions in interest payments dollar-for-dollar to bring that ratio down to 31%. The lower interest rate must be kept in place for five years, after which it could be gradually stepped up to the conforming rate in place when the modification was granted. The Treasury will also share in the cost of reducing the principal amount owed on the loan. Treasury will develop uniform guidelines for loan modifications across the mortgage industry. Servicers will be given incentives to perform loan modifications in lieu of foreclosure.
The third part of the plan is to strengthen confidence in Fannie Mae and Freddie Mac. Increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners, and provide forward-looking confidence in the mortgage market.
These are very complex issues. And I for one hope Obama’s plan works. Unfortunately, I am not sure how it can. There is no doubt we need to instill some confidence, or certainty, if you will in the mortgage markets. However, I have worked as a third-party consultant for lenders wanting to personally reach out to at-risk borrowers, for the past year and a half. I traveled to the doorsteps of individual homeowners in and around Dallas, who were identified as possible “loan modification” candidates by their lenders. It was my job to discuss their options with them and provide them with the road map to get help, which included a financials document. In almost every case, there were mitigating circumstances that kept the homeowners from being able to take advantage of the mod. While lenders today understand there is nothing more costly than a foreclosure, they are not going to modify the terms of a loan, only to prolong the agony and have to go thru the foreclosure process just a few months later. Because these borrowers were not qualified by the generally accepted standards to begin with, a downturn in the economy, a slowdown in the housing market, a cutback in hours, not to mention any number of other health-related or relationship-related hardships, put them in a position of not qualifying for even a modified payment.
Something certainly must be done, and I don’t have all the answers. But only time will tell just how many homeowners will benefit from the HASP initiatives.
