Hope for Homeowners for Avoiding Bank and Government Foreclosures

by Donald Hanz on Stop Foreclosures

The foreclosure prevention plan, Hope for Homeowners has failed to live up to expectations that it would help homeowners avoid bank and government foreclosures.

Since its launch five months ago, the plan designed to help distressed homeowners avoid bank and government foreclosures has helped only one borrower despite the $300 billion allocated for the foreclosure prevention program.

The foreclosure prevention plan is intended to help nearly 400,000 homeowners who are facing the threat of bank and government foreclosures.

According to Brian Sullivan of the Federal Housing Authority, there are currently 752 applications for the program, adding that so far, the program is failing on its goal of preventing bank and government foreclosures.

Representative Michael Castle described the foreclosure prevention effort as one of the biggest failed programs in the country.

However, hope has been given to the program to help it fulfill its goal of helping 400,000 homeowners avoid bank and government foreclosures.

The House of Representatives has approved a modified version of the HOPE for Homeowners. The updating of the program was part of the bill that reforms the bankruptcy law. The bill is the core of the Homeowner Affordability and Stabilization Plan of President Barack Obama.

Under the modified foreclosure prevention plan, mortgage lenders who voluntarily refinance delinquent loans are required to write down the principal loan balance to 93 percent of distressed properties’ fair market value.

The original program required mortgage servicers to reduce the principal loan balance to 90 percent of the fair market value of the home.

For example, a troubled borrower owed $220,000 mortgage on his property priced at $200,000. He should reduce his mortgage balance to about $180,000 to be eligible for refinancing under the original foreclosure prevention program. That is a write-off of about $40,000.

Meanwhile, under the modified foreclosure prevention program, mortgage loaners would have to write-off $34,000.

Because the program is voluntary, most mortgage servicers refused to participate as they favor using interest rate reductions and loan term extensions to help provide affordable mortgage payments to homeowners at risk of foreclosures.

The modified version of the program offers incentive payments of $1,000 to mortgage lenders to entice them to join the HOPE for Homeowners which is expected to help 25,000 troubled borrowers for the period of 10 years and at an estimated price of $675 million.