By John Kiff*
As U.S. home foreclosure rates rise to levels not seen since the Great Depression, government policy has consistently been too little, too late, and frankly, off target. In this series of posts, I’m going to do a fairly deep dive into the “end game” of the current mortgage crisis. (The “opening” and “middle games” have been well documented elsewhere – e.g., “Money for Nothing“.) In this first post, I’ll give a very broad-brush overview of the three government foreclosure mitigation programs that have been introduced since 2007. Then, I’ll talk about some of the reasons why they have failed (or are likely to fail).
FHASecure (introduced in 2007) and Hope for Homeowners (H4H, 2008) were designed to encourage lenders to write loans off in return for 90 to 97 percent of appraised home values. However, only about 4,000 loans were refinanced under FHASecure before it was closed down at the end of 2008, and less than 1,000 homeowners have applied for H4H short refinancings. These two programs failed largely because they left implementation to under resourced servicers, and placed almost all the writedown burden on the lenders and investors.