Call me a softy and a nerd. It's hard to believe, but yes I was one of the few that sat and watched Steve Preston's address to the National Press Club this past Wednesday. Many of you may not know who that is, but he is one of the most powerful people in the nation right now because he is the Secretary of the U.S Department of Housing and Urban Development (HUD) and he is trying to create hope for thousands of Americans that are currently facing foreclosure, or are soon to be facing foreclosure.
Unfortunately, as powerful as he may be, he is still all but hog tied by private industry and private industry is not budging. How bad is it? It was said that in the first two weeks of October 42 people applied for the Hope for Homeowners and all 42 were denied. First of all...42? Nationwide 42??? That's a joke. A joke that Steve Preston did not find funny.
Why has it failed? Simple, the private markets are already strapped for cash and not looking to spend more. FHA's flaw is that it cannot move without lenders to make the loan that they will insure. Lender participation has been non-existent and has crippled the legislation set forth to help "Main Street."
So, what's going to be done? There are two important things to remember. FHA will be raising the LTV cram-down from 90% to 96.5%. FHA will be providing up front payment to second liens holders for immediate release of these liens. Both of these actions should provide enough incentive for current lien holders to chose negotiation over foreclosure.
Debt ratios are normally strictly 31% for your housing payment and 43% for your total debt with FHA. The Hope for Homeowners program will open up to 38% and 50% for those that can get down to 90%, again adding more qualifying applicants to the pool.
They also will open the program to longer loan terms. If your debt ratios don't quite qualify at a 30 year term, you can also use a 40 year term to qualify. I suspect this is something that will come to the normal FHA loan soon. 40 and 50 year terms have successfully brought homeownership to thousands of Europeans over the past three decades and it's very long overdue in America.
Lender participation will still dictate the effectiveness of FHA's proposed help, but hearing these changes delivered from a very poised and positive Steve Preston finally brought me hope for the Hope for Homeowners program.
At least now we will see once and for all which is the proper method for dealing with this crisis- government intervention or capitalizing private market. Let me assure you, this is the final straw. If banks do not take to these changes and start making new loans....your tax dollars for the "bailout" will have been COMPLETELY WASTED. These banks have made billions, the CEOs have made millions at least one of them needs to step up now and join the club in trying to actually help people...I'm looking at you Chase.
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