MICHELE NORRIS, host:
From NPR News, this is All Things Considered. I'm Michele Norris.
MELISSA BLOCK, host:
And I'm Melissa Block. The federal government's program called Hope for Homeowners was launched with a lot of fanfare two months ago. It was supposed to help as many as 400,000 homeowners avoid foreclosure. So far, it hasn't saved a single home. This week, the secretary of housing and urban development called Hope for Homeowners a failure. NPR's Tamara Keith reports on what went wrong.
TAMARA KEITH: Saying the Hope for Homeowners Program has failed to live up to expectations is an understatement. In the first two months of the program, just 312 people have begun the application process. Kathleen Day is with the Center for Responsible Lending.
Ms. KATHLEEN DAY (Spokeswoman, Center for Responsible Lending): Obviously, anything that helps any additional person stay in a home we're for, but that's just too little to late. This is like too, too, too, too little. Well, this is obviously too little. This obviously isn't working.
KEITH: Hope for Homeowners was designed to help people who owe more than their homes are worth, are no longer able to keep up on their adjustable rate mortgages, and can't refinance. That's where the Hope for Homeowners program was supposed to come in. The idea was that lenders would write down the balance of the loans so borrowers could refinance into fixed-rate mortgages they can afford. It sounds good. But once you dig into the details, it doesn't work, not for borrowers and not for the lenders.
Ms. CHRISTY SMITH (Loan Specialist, NeighborWorks Resource Group, Richmond, Virginia): You know, it's extremely hard for consumers to qualify or accept the terms of it. They'd rather lose their homes than kind of go through this whole process.
KEITH: Christie Smith is a lending specialist with the NeighborWorks Resource Group in Richmond, Virginia. She says not one person who has come to her organization has qualified for Hope for Homeowners. Borrowers have to meet a very narrow set of requirements: time windows, debt-to-income ratios, and more. Smith also says lenders won't participate in a program that requires them to take sometimes hefty loses.
Ms. SMITH: That's the first thing we ask them, is would they take a principal reduction to try to work this loan up, and they say no. So if they won't even consider a principal reduction, it's not an option.
KEITH: Principal write-downs are often a tough sell, particularly in cases where investors own the loans through mortgage-backed securities. William Fry is one of these investors.
Mr. WILLIAM FRY (Investor): I hold dozens and dozens and dozens of classes of mortgage-backed securities.
KEITH: Loan servicers manage the mortgages. They collect the payments. And they're operating under contracts with investors that strictly limit what they can do. Some of the contracts even say, no modifications allowed. Fry says he and some others in the financial industry sent letters to loan servicers before the Hope for Homeowners program even took effect.
Mr. FRY: Basically saying I held these pools. Their contract does not allow for this. If they violate the contract, don't come in after them, and I'm watching them.
KEITH: And do you think that that's had an effect on the willingness of servicers to modify loans?
Mr. FRY: Absolutely. It had a very chilling effect on their willingness to modify loans that were in securitizations.
KEITH: And that's exactly where most of these problem loans are, in securities. Congressman Barney Frank, head of the House Financial Services Committee, helped shape the Hope for Homeowners program. He doesn't seem particularly concerned about lending industry participation. He says investors will come around to accepting loan modifications.
Representative BARNEY FRANK (Democrat, Massachusetts): The holders, or a great majority of the holders, understand that they will be better off if we work this out for two reasons. First of all, they won't lose as much money as if there's foreclosure. Secondly, many of them are big players in the economy, and they understand the macroeconomic importance of this.
KEITH: Frank admits there were flaws with the legislation that are preventing borrowers and lenders from using the program. Congress is out of session now, and he's called on Treasury Secretary Henry Paulson to use the power and money that came with the financial bailout package to fix it. Short of that, Frank says legislation is being drafted to resolve the problems. So far, not a single loan has been refinanced through Hope for Homeowners. Tamara Keith, NPR News, Washington.
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