Hope Now, but maybe heartbreak later...

As reported in several news services; a new alliance, called HopeNow, was announced by Treasury Secretary Henry Paulson this week. The alliance has some of the largest lenders and servicers that collect payments, a handful of housing counselor networks, and a group representing investors who hold mortgage debt. It is intended to coordinate efforts between servicers and counselors to provide "workouts," which can include lowering the interest rate on a loan, spreading out past-due payments over the life of the loan or a short-term repayment plan. But some who counsel distressed homeowners say the alliance won't resolve key issues.

Some believe that loan workouts have been difficult in part because of a lack of communication. The alliance members have agreed to provide dedicated teams to rectify that, a move borrower advocates commend. But some of the advocates say the alliance shows signs of being more talk than action."[It's] a smokescreen for not doing anything. It's a PR gimmick. Having a process without a realistic opportunity for results is setting the homeowner up for failure," said Bruce Marks, founder and CEO of the Neighborhood Assistance Corporation of America (NACA).

Marks and Michael Shea, housing director of the Association of Community Organizations for Reform Now (ACORN), said they are highly skeptical because of the reluctance they've seen among many of the alliance members to modify loans to levels affordable to borrowers. In addition, they say, lenders have relied on temporary concessions that potentially just postpone rather than prevent foreclosure.

Marks and Shea support a suggestion made by FDIC Chairman Sheila Bair last week. She called on servicers to permanently freeze interest rates on subprime adjustable-rate mortgages (ARMs) for those homeowners who are current on their payments and whose rates have yet to reset. Part of her reasoning: evaluating loans on a case-by-case basis is taking too long, and time is of the essence. Roughly 1.3 million subprime ARMs are due for a rate reset between now and the end of 2008, according to data from First American Loan Performance. Monthly foreclosure filings are nearly double what they were one year ago.

I must opine that this does not seem like the rocket science that the loan companies are making it out to be. Just freeze the rates that are set to explode on the ARMs and see what the fall out is then. It would seem to be much easier to let the people who are currently struggling, but able to make their payments at the current rates at least stay out of foreclosure. It makes no sense to force them into foreclosure and then try to wring a little bit more out of them in make-up payments. If the homeowner can’t even keep up with the current payments; well, then maybe he/she did overreach and a case-by case process to look at weather it is worth a work out attempt should be made.

The loan companies are starting to look more like classic mob loan sharks. They are displaying the loan shark attitude - “Yeah, we gonna work it out, I gonna break your knees, dat’s how we work it out.” I fail to see what they have to win by foreclosing on a property and then selling it for 50 cents on the dollar. That is what they are doing now. After all, these are the same companies who were running the ads last year that screamed “No documentation, no jobs, no visible means of support…no problem we can give you up to110% financing on the home of your dream.” Who can blame the innocent (if a bit ignorant) home buyer for reaching for that brass ring. After all, as these companies themselves touted, “it’s the American dream.”

So, is there indeed hope now? Somehow, with the tight connections that have been evidenced in the past between various Bush administration appointees and the fat cats who bankroll the boss, I seriously doubt it. But, any port in a storm and this is certainly a storm; so let’s hope that some good comes out of this alliance, even if it mainly a PR effort. Maybe the banks will get shamed by the press coverage into doing some good after all. But then, shame has never been a big attribute of those people, has it?