HOPE for Homeowners

From Federal Reserve Governor Elizabeth A. Duke’s Oct. 23 testimony before the Senate Committee on Banking, Housing, and Urban Affairs, U.S. Senate:

The Federal Reserve System is working to develop solutions to rising foreclosures. Preventing avoidable foreclosures is good for borrowers, communities, and the economy.

A number of efforts are underway. The Federal Reserve has worked with other agencies to put in place the standards and procedures for the new HOPE for Homeowners (H4H) program, and I serve on the Oversight Board. These loans can help borrowers who might otherwise face foreclosure because the new loan payments are more affordable and the homeowners get some equity in their homes. Lenders and servicers are analyzing their borrowers for good candidates for the H4H program, and the FHA and its authorized lenders are poised to process applications.

From the FHA’s Oct. 1 press release:

The HOPE for Homeowners program begins today and ends September 30, 2011. The program is available only to owner occupants and will offer 30-year fixed rate mortgages — so the borrower’s last payment will be the same as the first payment. In many cases, to avoid what would be an even costlier foreclosure, banks will have to write down the existing mortgage to 90 percent of the new appraised value of the home.

The FHA website claims, “As many as 400,000 homeowners could avoid foreclosure through this program over the next three years.”

That will help, particularly when combined with existing programs from the Hope Now coalition of banks and investors. According to CNN, the program “helped 212,000 borrowers stay in their homes in September, a new record and an increase of 12% from August.” However:

Despite Hope Now’s best efforts, many homeowners are still falling through the cracks. According to Hope Now, 85,793 homes were lost to foreclosure in September, down 1% from August. At that rate, more than a million families will have their homes repossessed in the next twelve months.

The H4H program will help contain that number with its additional 400,000 homes saved. What’s more, the government and lenders have shown a strong determination to keep foreclosures from spinning out of control.

That’s the first step in stabilizing property prices, which will contain the damage on bank balance sheets, which will encourage lending to get going again, which will rain hope on Wall Street.

We are not entering The Great Depression. The programs in place and others on the way are going to work.

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