Hope For Homeowners: A Failure Print E-mail
An Industry In Denial
The latest statistics released show that the banking industry has been dragging its feet when it comes to helping homeowners who are facing foreclosures.  The industry's contention however is that it has done as much as possible to limit foreclosures seems hollow. Some statistics it cites appear to be exaggerated. Even pro-industry figures such as Steven C. Preston, a Republican businessman who headed the Housing & Urban Development Dept. late in the Bush Administration, concede that many lenders have dragged their heels. "The industry still has not stepped up to the volume of the problem," Preston says. One program, Hope for Homeowners -- which Bush officials and banks promised last fall would shield 400,000 families from foreclosure -- has so far produced only 25 refinanced loans.
Congress approved Hope for Homeowners on July 26, 2008, as part of a larger measure imposing restrictions on the mortgage finance firms Fannie Mae  At the Mortgage Bankers Assn., lobbyists gathered in Gustafson's corner office to lift plastic cups of wine in celebration.
Those familiar with Hope for Homeowners anticipated that its fine print would discourage all but a few borrowers. "We knew it was likely to have limited appeal," says Preston, the former secretary of HUD, which oversees the FHA.  George Miller, executive director of the American Securitization Forum, a Wall Street trade group, calls the program and its 25 refinanced loans "useless" because of the onerous details. In the end, the program included stiff up-front and annual fees and a requirement that homeowners pay the government 50% of any future appreciation in the property's value -- all of which made it much less attractive to borrowers. Moreover, the banks' participation was made entirely voluntary; there was no way to pressure them to cooperate.
Broken Bill
Ranking Republican Banking Committee Member Senator Shelby, for his part, never expected Hope for Homeowners to accomplish much, according to Republican Senate aides. He agreed to it to gain Dodd's support for greater regulation of Fannie and Freddie -- and only when assured the program wouldn't drain tax dollars. "My consistent aim throughout this crisis has been to protect the American taxpayer," Shelby told Business Week in a statement. He accepted $565,000 in contributions from the financial-services industry in 2007-2008.
Frank, whose industry contributions totaled $948,000 over the same period, says he became skeptical Hope for Homeowners could achieve its initial goal of helping 1 million people. But he expected much more progress than the mere 25 refinancings that have occurred so far, according to HUD. He blames Republicans and the industry for undercutting his legislation. "I didn't have the votes to do more," he says.
The Massachusetts liberal hasn't given up hope of repairing Hope for Homeowners. He is working on changes that would cut borrowers' up-front fees and provide bonus money for mortgage servicers that agree to participate in the voluntary program. Frank aides Paese and Delfin aren't assisting with the fixes: They have left their congressional staff positions for lobbying jobs with the Securities Industry & Financial Markets Assn. in Washington. They say they are observing the one-year federal ban on speaking with their former boss about business they did on the Hill.
Attorneys Are Doing a Better job than Congress
The latest statistics also show that consumers who retain an Attorney to represent them with the banks for the purpose of negotiating a loan modification to forestall foreclosure and negotiate a lower payment, are having tremendous success. Tens of thousands of consumers have now received significantly lower mortgage payments and in some rare cases, even principal balance reductions when they hire an attorney to leverage the multitude of Predatory Lending and fraud violations that occurred in the heat of the mortgage boom. One attorney, Jon McGrath of Consumer Debt Advocate Law Center ( http://www.cdalawcenter.com ) tells us that " they have been successful renegotiating 98% of the cases they take on." McGrath goes on to say that “The consumer's individual financial situation still need to be analyzed before he will take on a client to ensure a successful outcome with the lenders, as he must still prove the borrower’s ability to repay the new reduced payment.  It's still a long, hard fought battle with the banks however to get them to concede, but we understand the leverage points and only take on clients we feel confident we will gain traction to reduce their payment."  
By early 2008 it was obvious that Hope Now wasn't halting a significant percentage of foreclosures. Democrats in Congress began gathering ideas for a government-sponsored remedy. Many of those ideas came from the industry. Lobbyists and congressional aides referred to one concept as "the Credit Suisse plan." Another, "the Bank of America plan," would allow borrowers to refinance mortgages with loans guaranteed by the Federal Housing Administration. Representative Barney Frank (D-Mass.), the chairman of the House Financial Services Committee, had solicited BofA's advice via an old Boston acquaintance, Anne Finucane, the bank's chief marketing executive and a politically active Democrat. He assigned several aides, including Michael M. Paese and Rick Delfin, to work out the details.
Francis Creighton, a Democratic former staff member on the Financial Services panel who had gone to work as a lobbyist for the Mortgage Bankers Assn., negotiated with Paese and Delfin. Creighton's Republican colleague Gustafson huddled with aides to such GOP lawmakers as Representative Spencer Bachus and Senator Richard Shelby, both of Alabama.
Before long, the anti-foreclosure provisions were being altered in ways the industry favored. Shelby, the ranking Republican on the Senate Banking Committee, along with other Republicans insisted on the pro-industry language in exchange for their support, aides say.
In the end, the program included stiff up-front and annual fees and a requirement that homeowners pay the government 50% of any future appreciation in the property's value -- all of which made it much less attractive to borrowers. Moreover, the banks' participation was made entirely voluntary; there was no way to pressure them to cooperate.  Leaving the salvation of so many homeowners in the hands of the very same people who gave them risky and bad loans to begin with, ultimately will not stop the bleeding that is going on in the housing sector.