“We’ll help guard against future problems in the housing sector,” said the President. We’ll reaffirm the vital place of homeownership in our nation. When more families own their own homes, neighborhoods are more vibrant and communities are stronger, and more people have a stake in the future of this country.”

Now, six months later, the Hope Now program has reported huge results.

“An estimated 870,000 borrowers were helped in the second half of 2007,” says, Faith Schwartz, Hope Now’s executive director. “Over half a million of those were subprime borrowers and they obtained either a modification or repayment plan to help them stay in their home. Modifications also doubled in the 4th quarter.”

In addition, said Jackson, “just last week HUD started sending out letters to more than 850,000 targeted homeowners, urging them to consider refinancing high cost subprime loans with FHA.”

It would seem as though the Hope Now program has saved enormous numbers of delinquent conventional borrowers from foreclosure. But in fact, the actual number of refinanced loans is surprisingly small.

For instance, the Wall Street Journal reports that “in the past two months the 1-888-995-HOPE hotline received roughly 176,000 calls, according to the nonprofit Homeownership Preservation Foundation, which operates the hotline. During that time, hotline counselors recommended a workout for 9,975 borrowers — and told an additional 4,410 people to ‘seriously consider selling their home,’ the group says. Another 12,113 borrowers were referred for in-person counseling and services such as job-placement help.” (See: Earlier Subprime Rescue Falters, Feb. 13, 2008)

Huh? How does telling people to sell their homes equal saving homeowners from foreclosure? In either case families are forced out their houses. How many of the workouts actually resulted in loan modifications or refinancing? What happened to the 149,502 callers who were not advised to sell, referred to counseling or told to look into a workout?

As to HUD, in addition to receiving 228,000 conventional refinancing applications, Secretary Jackson also said “more than 5,000 of these families were already in default and facing foreclosure on their subprime loans. Fourteen hundred lenders have used FHASecure to help struggling homeowners.”

Why was the FHASecure program announced by President Bush? It was to help people with toxic loans who were facing foreclosure. Thus, of 228,000 FHA applications from conventional borrowers only about 5,000 have been from delinquent borrowers — that’s fewer than four per participating lender.

The catch is that not every loan “application” results in a new mortgage. HUD’s “FHA Outlook” report shows that during the entire month of January only 412 delinquent conventional borrowers were able to get FHA mortgages.

But wait. What about the rate freeze? As President Bush said, some borrowers could be helped under the Hope Now initiative by “freezing their current interest rates for five years.”

To this point there have been few if any rate freezes. As Faith Schwartz explains, it was only in February 2008 — six months after the President’s initial announcement — that her group began “implementation of the rate freeze.”

Most remarkably, despite the enormous attention given the foreclosure rescue effort, the Census Bureau has now reported that the homeownership level in the final quarter of 2007 was actually lower than in any period since 2002. The unmistakable meaning: Even with an expanding population homeownership levels are falling as a result of massive foreclosure levels.

Project Lifeline

Given the increasingly-public failure of the initial foreclosure rescue effort, the government has now announced a new crusade named Project Lifeline.

Six members of the Hope Now alliance — the Bank of America, Chase, Citigroup, Countrywide, Washington Mutual and Wells Fargo have agreed to send “a letter to seriously delinquent homeowners nationwide giving homeowners a simple ‘step-by-step’ approach that, if followed, may enable them to ‘pause’ their foreclosure for 30 days while a potential loan modification is evaluated.” The six participating servicers are believed to represent half of all mortgages, according to Hope Now.

The program is different from the “streamlined” approach announced last year, says Hope Now, because instead of being limited to subprime loans, it’s “a broad, national approach to help all homeowners individually. Subprime, Alt-A, and prime loans may qualify for this program, including second liens and home equity loans.”

In other words, the fiction that the mortgage meltdown is limited to subprime loans is at an end.

Steps

According to Hope Now, individuals who are “seriously delinquent” (meaning 90 days or more late) will need to follow five steps to qualify for the possible 30-day reprieve. The steps are:

·       Step 1 — Call your mortgage servicer.

·       Step 2 — Tell the servicer you have received the letter, you want to stay in your home and you are willing to seek counseling, if necessary.

·       Step 3 — Provide updated financial information so the servicer can explore an appropriate solution.

·       Step 4 — If appropriate, any pending foreclosure may be “paused” for up to 30 days during this review process until a formal decision is made and, if possible, a plan is created.

·       Step 5 — If a workout plan is established and the homeowner follows the plan for three consecutive months, their loan will be formally modified as they will have demonstrated their ability to meet the requirements.

As with Hope Now, Project Lifeline does not actually require any lender to modify a mortgage or do anything else, it’s a voluntary effort. Moreover, of the 25 members of Hope Now, 21 are not part of the new effort. Also, of course, there are plenty of caveats: “if appropriate,” “may be” paused and “if possible.”

Can Project Lifeline reduce foreclosure numbers? If lenders elect to modify large numbers of home mortgages — and not merely offer repayment plans — then borrowers may well be helped because they will effectively be able to refinance with their current lender or they will have additional time to sell the property, refinance with another lender, or bring their current loan current.

What’s Not Said

Within the Project Lifeline project is the opportunity to seriously reduce foreclosure numbers — not reduce foreclosures but to instead reduce reported foreclosure levels.

Given that much of the public and political discourse involves front-page headlines each time RealtyTrac issues its monthly foreclosure reports, there have been obvious and overt efforts to deny those statistics, to question their validity and to present alternative numbers.

One potential by-product of Project Lifeline could be a reduction in disclosed foreclosure numbers. A 30-day ‘pause” is not a reportable foreclosure action in the sense of a default notice, auction sale notice or bank repossession.

A large number of “pauses” will not only reduce reported foreclosure numbers, they will also impact financial statements because fewer traditional foreclosure actions will show up on lender books. In turn, quarterly results and securities will potentially be enhanced — good news for company officers hoping for bonuses and shareholders seeking higher values.

“It would be terrific if Project Lifeline leads to large numbers of loan modifications so that borrowers and lenders can avoid the terrible harm and loss represented by every foreclosure,” says James J. Saccacio, RealtyTrac’s chief executive officer. “As we have seen with Hope Now, it will take a number of months to determine if the Project Lifeline produces real results. Meanwhile, the grim reality is that hundreds of thousands of homeowners will receive new foreclosure paperwork each month while everyone debates still-another voluntary effort.”
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Peter G. Miller is the author of the Common-Sense Mortgage and is syndicated in more than 100 newspapers.