Real Estate

Hope Now's numbers don't add up to much help

The coalition says it's helped 1.2 million home owners, but not everyone is convinced that it's doing enough to keep troubled borrowers out of foreclosure.

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By Les Christie, staff writer

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NEW YORK ( -- Lenders have helped nearly 1.2 million troubled home owners as part of a Bush-administration led housing rescue effort, according to numbers released Thursday by the Hope Now coalition.

But it's still not clear from the data, which represent the total number of workouts from July, 2007 through the end of February, exactly how effective Hope Now has been in keeping people in their homes.

During those same months nearly 419,000 borrowers lost their homes through foreclosures, according to Hope Now.

The administration-backed coalition of lenders, investors and community groups only breaks down its numbers into two categories: repayment plans and loan modifications. Repayment plans give borrowers time to make up missed payments, while loan modifications change the terms of the loan by, for example, permanently reducing a loan's principal, interest rates, or both.

Out of the 1,178,000 Hope Now loan workouts, 848,000 were repayment plans, which are generally not as helpful to troubled borrowers.

These plans just exacerbate the problem, according to Federal Deposit Insurance Corp. Chairman Sheila Bair, since borrowers are in trouble because they couldn't afford their original monthly payments in the first place.

Permanent fixes

Still, Hope Now has improved its modification numbers. In 2008, nearly 37% of the workouts were classified as modifications, compared with only 25% in 2007.

Hope Now classified only 331,000 of its workouts as modifications, up from 278,000 through January. These are usually more effective at keeping people in their homes since they're tailored to what home owners can afford to pay.

But not all of what Hope Now calls modifications involve principal reductions or interest-rate cuts; the coalition also lumps temporary interest-rate freezes into this category, as well as mortgage extensions, from 30 years to 40, for example. Those fixes offer only limited relief for many at-risk homeowners.

In fact, 40% of the subprime, adjustable rate mortgage borrowers who went into foreclosure in the three months ended September 30 - the most recent figures available - had already gone through a workout with their lenders, according to a study from the Mortgage Bankers Association.

For borrowers in housing markets where prices are declining, deferred payments are particularly problematic, adding to balances that are often already higher than their home values.

"[Repayment plans] put more loans upside-down," said Jim Carr, chief operating officer for the National Community Reinvestment Coalition. He adds that these fixes make it more likely that borrowers will walk away from their mortgages if they get behind again, since they have no equity to lose.

Carr pointed out that, Hope Now's claims not withstanding, foreclosure rates continue to soar. "We're en route to possibly 2 million foreclosures this year alone," he said. "It's so important that, rather just putting out stats to look good, that something is actually accomplished."

The latest Hope Now numbers are about what Jared Bernstein, an economist with progressive think-tank the Economic Policy Institute, expected.

"The administration will tout these numbers as an excuse to not go with a [more aggressive] program," he said.

"The issue with Hope Now has always been, 'Will it help enough people?'" according to Bernstein. "It's a conservative program consistent with the administration's desire to not bail out undeserving lenders or borrowers."

The FDIC's Sheila Bair said Hope Now should release more detailed information about how it is helping people.

"Accurate reporting about loan modification efforts is essential to an improved understanding by the public and policy makers of progress in responding to growing mortgage delinquencies and foreclosures," she told a conference of state bank supervisors last month.

Hope Now is working on improving its reporting, according to its Executive Director, Faith Schwartz. "We're looking to collect data in much more detail," she said, "but it will take another couple of months."

More rescues

Both the Bush administration and Congress have been pursuing plans that could quickly boost the number of loan modifications.

Under the administration plan, the Federal Housing Administration (FHA) would, for the first time, allow some borrowers who have fallen behind of their payments to refinance with FHA-insured loans. That could help a half million homeowners this year.

The deal would require lenders to take a hit if a home's value has slipped below the mortgage balance, writing down the mortgage to either 97% of the market value or 90% for borrowers in default.

House Finance Chairman Barney Frank has a proposal that he said could help 1.5 million borrowers, which would require lenders to write down loan balances to 85% of market values. The loans would be then converted to FHA insured mortgages.

Additionally, the Senate on Thursday passed a bipartisan package of tax breaks and other steps designed to help businesses and homeowners weather the housing crisis.  To top of page

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