Rick Arvielo

No Hope for Homeowners

Why Government programs to help homeowners don't work.

To understand the breakdown you have to understand the existing structure through which a loan get's done. This attachment illustrates the process a loan needs to go through to ultimately get funded. The governments desire to provide financing to borrowers in distress or even the appetite of investors to own those loans mean very little unless every step in the process is willing to participate. One missing step will derail the whole strategy.

Currently, the major banks through which their retail loan centers, independent brokers and smaller interim banks rely as a necessary step in the funding process do not have any desire to fund and own the responsibility of collecting the payments from borrowers that are clearly in distress. Even though the "Loan" amount is ultimately guaranteed by Fannie, Freddie or FHA. The responsibility for the payment collections fall squarely on these major banks. Due to current rising default rates, the banks simply do not want the added work-load, risk and upfront cost associated with borrowers that have displayed a pattern of not paying their mortgage. Regardless of the reason.

Can you blame them?

I must admit, I felt very frustrated when “Hope for Homeowners” was first introduced last October. We, as a fully delegated FHA lender professed at working with distressed borrowers through successful write-down negotiations and Loan Modification activities, were inundated with borrower requests for this product. We were anxiously anticipating a windfall of business opportunity when the guidelines were first released. As I called my contacts at all of the large Institutional Lenders on which we all rely to sell our loans I was met with zero interest in cooperating with the program. Out of frustration, I went toe to toe with one of the major investors at the Mortgage Bankers meeting in San Francisco where I even brought up the fact that they had just received Billions in TARP money and weren’t going to use any of it for the Hope for Homeowners program when this gentleman said something to me that stopped me in my tracks.

He said, If we would agree to buy these loans from you where you are on the hook for the borrowers first 4 payments, the typical timeframe for a mortgage bank, or you would have to buy the loan back…what would you do? Admittedly…I am no longer an advocate for the program.

What the government needs to do the next time they decide to spend all of the time and money to come up with a program to help homeowners is apply a little discovery to the systemics of actually originating and funding these loans. They might also do well to get the Major Banks to “sign off” on the program and agree to some level of support. The Hope for Homeowners program should have included a “First payment default” guarantee and money earmarked for the servicing of these loans. Then, it might have had a chance.

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