About Government Refinance and Home Purchase Programs

Information and Updates on Government Mortgage Programs
Filed under Updates on FHA short refi program - HOPE loan qualifications

As we have documented here in the past, the recently launched H4H program was a colossal failure. There was an interesting article over at The Washington Independent that delved into why it was such a failure. There are three reasons listed:

1. The costs were too high to consumers
2. The program was voluntary so banks weren’t anxious to write off huge amounts of money when they could just wait and see if a better deal came along
3. The servicers of defaulting loans (third party companies hired to collect on mortgages after the mortgages are sold to investors as part of mortgage backed securities) were worried that if they went for and H4H deal instead of foreclosing they might get sued by the investors they work for so the went with the more familiar and lawsuit-immune route of foreclosures

We know from experience that #1 was not at all a reason for the failure of the program and anyone who says otherwise is out to lunch. People who are upside down and their homes and on the verge of foreclosure would have gladly accepted an H4H loan if one were available.

Reason #2 was and obvious problem because banks are always going to try to act in their own self interest. But reason #3 is a really interesting insight. It points out a structure and institutional problem that must be dealt with if the H4H program is to ever take off.

The other interesting idea is to relieve the already overworked and understaffed FHA department of the program. But I suspect they will need to fix problems 1-3 before that matters at all.

Comments (1) Posted by G.R.A. Admin on Friday, February 13th, 2009

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