Why FHA's Hope 4 Homeowners Won't Likely Work!

I hate to call myself a pessimist and one definitely needs to have a "glass half full" approach in these unprecedented housing market times. However, I find it hard to believe that Hope 4 Homeowners will take flight the way our government speculates when FHA Secure has already shown a slow start, and Hope 4 Homeowners is an even more aggressive product, in a market where lenders are tightening up.

Here's the problem the way I observe it. First, the entire product's success depends on a two part process whereby two mortgage companies or servicers work jointly together to find a solution for the struggling homeowner. The first condition to make the product successful requires Mortgage Company A/The Loan Servicer to take less than the borrower currently owes on the home as a payoff; we'll call this the "short-payoff" or "write-down" of the debt. Here's my cynicism: FHA Secure and MSHDA (Michigan State Housing Development Authority) here in Michigan already allow for write-downs to be used in conjunction with their bailout products; I work for a unique mortgage broker, Providence Home Mortgage, owned by ICCF, a HUD approved non-profit housing counseling agency. ICCF focuses on pre-purchase counseling for first time homebuyers but does a lot of foreclosure prevention. ICCF also works very collaboratively with Home Repair Services here in Grand Rapids. There are almost 15 housing counselors between the staff of ICCF and HRS and none of them have reported a success with getting a servicer to take a short payoff or write-down to date. And MSHDA's Save the Dream Mortgage would allow for 100% financing of current value.

So my question is, then why would a servicer do a write-down to 90% of current value?

Second, Hope 4 Homeowners is totally voluntary! Each servicer, at their discretion, can take less than is owed. How is this different than pre-legislation with FHA Secure?! There's no consequence for not doing what the government suggests, none whatsoever.

Third, and this I believe may be the biggest hurdle is this: the borrower typically has to be able to get approved for a FHA mortgage with company B, a different mortgage company. While FHA states there are no minimum score requirements and that some delinquencies are allowed, most banks voluntarily place minimum score requirements on their FHA loans now. Most of them require a 580 score if the loan can go through an automated approval system or a 600 to be reviewed by a good old fashioned human underwriter. I have yet to see a 580 go through automation. And how many people with late payments on their mortgage can meet these score requirements? I haven't seen one yet!

Here's my logic as to why the banks want these score requirements- most banks get the FHA Insurance (commonly called PMI) placed on the loan post close. So, they don't want to take the risk that they approve a marginal loan only to find out that FHA won't insure it and now they have another high risk loan in their portfolio with no where to sell it!

I really wonder who is testifying in front of congress? It seems like another, dare I say, useless program created by our government to try to stop the bleeding, an attempt to look like they are doing something. The right hand isn't talking with the lefthand. FHA can say all day that they will "allow" something, but if they can't get the gunshy lenders to bite now that they've been burned for so long, then this program will be fruitless.