The foreclosure prevention program, which aims to put borrowers into more affordable loans via principal balance reductions, has resulted in just a single conversion since its inception in October.
“As it stands now, we’ve only gotten 752 applications,” Federal Housing Authority spokesman Brian Sullivan told CNN. “And only insured one loan. Needless to say, the program isn’t working terribly well.”
Amazingly, Congress had made available $300 billion for the loans, anticipating as many as 400,000 families would benefit from the loan program.
Unfortunately, the original program gained little support as it called on banks and lenders to voluntarily refinance delinquent mortgages by lowering principal balances to no more than 90 percent of the new appraised value.
Additionally, HUD dropped the 3-month trial modification requirement, expanded the amortization to 40 years, and offered upfront payments to subordinate lien holders, but the program has still seen few takers.
However, Senator Chris Dodd, one of the key minds behind the program, wants a new version included in the impending bankruptcy bill, and believes new tweaks could prove beneficial.
The latest version will drop the condition that would force borrowers to split any future profits from the sale of the property with the government, while providing incentive payments to servicers, similar to the Making Home Affordable plan.
However, it’s hard to see many lenders fully dedicated to a plan that guarantees a loss, especially with other options like record low interest rates floating around, which promote affordability without sacrificing much in return.
It is now estimated that 25,000 borrowers could receive assistance via the program over the next decade at a cost of $675 million.