Does the Hope for Homeowners Act Offer Hope for You?

30 Jul Does the Hope for Homeowners Act Offer Hope for You?

The housing rescue legislation that was signed into law today is called the Hope for Homeowners Act of 2008. Sounds good, right? Hopeful, even.

But the cynic in my head says “Yeah, and they called the bankruptcy amendments two years ago a “Consumer Protection” act. So let’s take a quick look at what it may (or may not) do.

Grossly oversimplified, the act offers government guarantees to lenders who are willing to work with you to keep you out of foreclosure. But, you have to be “qualified” for the program. Here are some key points:

  • The program goes into effect October 1, 2008. Until then, look for other options.
  • Your lender has to be willing to write down your loan to 90% of your home’s value. In other words, your existing mortgage lender has to be willing to reduce the balance of the mortgage so that there’s a 10% equity cushion in the property.
  • Your existing mortgage must have originated before January 1, 2008.
  • The program is available for your primary residence only.
  • You must be devoting more than 31% of your income to your mortgage payments.
  • Income must be verified to qualify for the new loan, and you have to be able to afford the payments on the new loan.
  • If you sell your home in the five years following this refinancing, you have to share the profit with the government. The government’s share is calculated on a sliding scale for the first five years; after that, you’ll split the profit 50/50.

Virtually every media report on this legislation says that the bill will save 400,000 homes from foreclosure. Well, maybe. Basically, it is estimated that the funding limits for those federal loan guarantees will make it possible to help that many families. That assumes that the lenders are willing to take a haircut and write down those balances. In theory, it makes sense. Lenders take the write-down, but avoid the expense and risk of foreclosure, and benefit from rebounding property values if foreclosures slow and excess housing inventory is eliminated. And, if they don’t take advantage of this program, there is a good chance that an irate Congress will increase regulation of the mortgage industry.

My problem with that that it assumes that the mortgage industry will act in a logical and thoughtful way. In my estimation, it was the failure of the industry to do exactly that that got us into this mess. At best, it appears to me that the program will offer the most benefit to those who aren’t too far behind, and who aren’t too far underwater.

It remains to be seen whether the Hope for Homeowners Act of 2008 offers real hope, or becomes another infamous misnomer along the lines of “Mission Accomplished” or “Heckuva Job.” At best, it appears to me that the program will offer the most benefit to those who are struggling, but are current enough on their payments to look like a good risk. Hope it helps.

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Däna (pronounced "Donna") Wilkinson, has been a bankruptcy lawyer in South Carolina for 20 years. She is certified as a bankruptcy specialist by the South Carolina Supreme Court.
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