In Scoring Mortgage Modifications, It Is The Private Sector In A Blowout

The score is like something from of a cricket match gone horribly wrong: 3,675,971 to 1.

Sadly, it's not sports.  That is the tally as of April 8th for the number of mortgage modifications performed under competing public and private plans.

Private sector (Hope Now):3,675,971

Government (Hope for Homeowners): 1

The government figure is not a misprint.   Exactly one - one - mortgage has been successfully modified and endorsed by the FHA under the Hope for Homeowners plan.    While the Hope Now Web site clearly shows the successes, don't bother looking on the government page, you won't find the 'one' anywhere.

Those numbers - while disputed in an interview I did with HUD Secretary Shaun Donovan - came directly from HUD itself on Wednesday afternoon.    I posted the email chain with a HUD official to clearly indicate that those numbers came from the agency itself.

The loneliest number is even more bizarre given the other figures involved: $300 billion, $20 billion, 400,000, and 865.   Those are the other figures for the "Hope for Homeowners" government mortgage plan:

• $300 billion dollars in loans insured by the FHA
• $20 billion dollar credit subsidy to help fund the plan
• 400,000 is the estimated number of homeowners the program was said to benefit
• 865 is the number of applications received by the government under the plan

So what's the problem?

The Hope for Homeowners program was signed into law on July 30th, 2008, and set up to 'help those at risk of default and foreclosure refinance into more affordable, sustainable loans. H4H is an additional mortgage option designed to keep borrowers in their homes.'  Despite millions of Americans being at risk of losing their homes, a shockingly small number of homeowners have actually reached out to the program for help, as evidenced by the only 865 applications received under the program.   It is scheduled to run from October of last year through September 30, 2011.

Why so few applications and even fewer Hope for Homeowner mortgage adjustments?  Knowledge of the plan isn't the issue.  In recent testimony, HUD official Meg Burns said, "...between this aggressive educational campaign and the tremendous amount of publicity the program has received from the press, there is no doubt that homeowners in need of help are fully aware that it is available.  In fact, since last September, the FHA call center has received more than 66,000 consumer and industry inquires regarding the program, which represents about 45 percent of all incoming calls."

Knowledge, though, may be precisely the problem.  One aspect of the program that Burns admits is an issue is that consumers who take part in the program know they must share in any future price appreciation of their homes with the taxpayer.   Under HUD's own example, if a homeowner reworks a mortgage, stays in the home for 20 years and the price goes up $70,000 before he sells the house, he must give $35,000 back to the government.   In other words, the taxpayer receives compensation for the risk assumed.   Not surprisingly, HUD wants to mitigate or eliminate this part of the program.

In an email back to me, a HUD official wrote:

"This refinance program needs modifications to make it more attractive to both homeowners and lenders.   The Administration supports Congressional legislation designed to bring about those changes.   Congressional reforms are in HR 1106 in the House and are being considered in the Senate as well."

Apparently the modification program needs its own modification

Meantime, the privately run Hope Now program seems to be a success, with the more than three and a half million modifications performed already.

Ironically, the failure of Hope for Homeowners may be a win for taxpayers.   The private sector seems to be working out the issue on its own - albeit with a little shove from Washington - and much of that $300 billion set aside for Hope for Homeowners may not be needed.

The Obama administration has realized that the government is lagging, and has created another initiative under Treasury known as Making Home Affordable.   That commits another $75 billion dollars and is designed to help seven million to nine million homeowners -- none of whom can own a home worth more than $729,750 though, as that amount of loan and above is ineligible for modification.

Seven million to nine million mortgages modified is a noble goal, but perhaps we can start at just seven.   That would, after all, be seven times more than the current plan.