Tulsa World: Federal mortgage aid effort called inadequate by lenders

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Federal mortgage aid effort called inadequate by lenders

A foreclosure designation tops a for-sale sign in front of a home in northwest Denver. Many lenders are unimpressed with the government's "Hope for Homeowners" program. David Zalubowski / Associated Press

By DIONNE WALKER Associated Press
Published: 11/14/2008 2:16 AM
Last Modified: 11/14/2008 3:08 AM

ATLANTA — Hundreds of lenders told federal housing officials Thursday that a $300 billion mortgage aid program requires too many losses for consumers and lenders to realistically help 400,000 Americans avoid foreclosure.

"This program is extremely difficult and complex and just not logistically possible," said Jason Graydon, a mortgage loan officer with Bank of Travelers Rest, in Travelers Rest, S.C.

Drawbacks to the government's "Hope for Homeowners" program include requiring lenders to forgive massive portions of defaulting loans and forfeit future equity to the government. Another provision leaves homeowners owing the federal government half the value their home gains years down the road.

"The home is one of your biggest investments in your life. When you take away so much of that equity are you really helping the homeowner?" asked Nebraska-based housing counselor Stacy Hlavacek, one of more than 500 lenders and counselors gathered in Atlanta for a two-day national conference.

The meeting is one of dozens the Federal Housing Administration has planned to publicize the program, which lets troubled homeowners trade risky loans for 30-year fixed rate loans with lower rates.

The program began Oct. 1, and is off to a slow start, the government conceded. The FHA received just 111 applications during the first month.

Critics point largely to losses that are tough for already troubled banks to stomach.

But Margaret Burns, HUD director of single family program development, defended the program, saying, "When we talk to the lending community, we don't feel (the losses are) the biggest impediment."

In fact, the losses are just one of many, lenders told FHA officials Thursday.

They also criticized nuanced requirements that are both tough to enforce and block many of the homeowners the program's supposed to help.

For example, lenders must dig up two years' worth of financial records to prove borrowers haven't intentionally defaulted on loans or lied about their income in the past.

Lenders also can't extend the program to consumers with multiple homes, even in cases where a homeowner was forced to move before closing on a hard-to-sell house.

Passed by Congress this summer as part of a massive housing bill, the program aims to replace a consumer's old loan with a new one set at 90 percent of the current value of the home. Lenders absorb the difference, whether it's $600 or $60,000.

Consumers have to pay higher than normal FHA insurance premiums, agree to share the remaining 10 percent equity with the government, and split any future appreciation on the home 50-50.

Those details have rankled lenders who argue the program too heavily benefits the government.

More banks are expected to enroll in the program if only to recover a sliver of their original losses from the federal government, said Brian Brady, managing director of mortgage banking and brokerage firm World Wide Credit Corp. in San Diego. But they are waiting for the industry's leaders. By DIONNE WALKER Associated Press

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