The Troubled Asset Relief program (TARP) was originally touted to Congress and the public as a request for funds to purchase troubled home loans, helping lenders get them off the books and loosening up money for deserving mortgage borrowers. However, once passed, that plan was junked in favor of less direct help.
TARP: What Happened to the Homeowners?
Instead of buying up bad home loans, Treasury Secretary Henry Paulson elected to purchase stock in the biggest lending institutions, in theory supplying cash to lend and thaw frozen credit markets. Treasury official Neel Kashkari claimed that this would somehow help struggling homeowners. “Our system is stronger and more stable than just a few weeks ago,” he said.
New Plan Has Worked Before
The feds believe that putting money directly into mortgage markets is better because the money goes further. For every dollar banks receive, they can make more than $10 in loans because of something called the “multiplier effect.” It’s the way money works–for example, if a lender has $1 million in deposits it may lend $800,000 and keep only $200,000 on hand for depositors. So in effect that $1 million becomes $1.8 million. And it goes even further–that money is spent, and deposited, and loaned again, multiplying the effect of the original million on the financial system. Thos strategy has worked before: Swedish banks were successfully bailed out in the 1990s when the government bought up their stock and the economy was stabilized.
No Help for Homeowners in Sight
Unfortunately, this change means that no direct help to those in imminent danger of losing their homes will be forthcoming from TARP. FDIC Chairman Sheila Blair and House Financial Services Committee Chairman Barney Frank have warned that the foreclosure crisis will worsen to the tune of up to 5 million foreclosures over the next two years.
What Should Homeowners in Trouble Do?
If your mortgage is pulling you under, you won’t get any breathing room from bailout funds. Your best chance to save your home remains with your lender, HUD housing counselors, or FHA. Hope for Homeowners has made some changes designed to help more people, increasing eligible LTVs to 96.5% from 90% and allowing 40 year terms, making refinances available to more homeowners. FHASecure allows those with ARM home loans to refinance even if they are behind on their mortgages or have credit problems–if the problems were caused by an upward reset of their ARM payment. The Treasury Department’s current strategy is focused on keeping lenders afloat and driving refinance interest rates down, eventually stabilizing the economy. Those who can’t wait for that should not count on help from the TARP program.
Loading ...
List of Lenders Who Are Participating in the HOPE for Homeowners (H4H) Program
HUD officials estimate this program could help about 400,000 homeowners to keep their houses. Today the agency released a still-growing list of lenders voluntarily participating. HUD strongly urges homeowners in trouble to contact the servicing or loss mitigation departments of their lenders as soon as possible.
If they are unable to reach someone who can help or are uncomfortable dealing with their lenders directly, there is help avaible through approved housing counseling services.
The list will be updated on Fridays. If your lender isn’t on it yet keep checking. And stay in contact with its workout department. If you truly want to keep your home and can afford it (with reasonable modifications) then don’t give up.
And check out the recent NINJA post for ideas on retrenching and keeping that roof over your head.
Loading ...
Outfits have sprung up all over offering desparate homeowners a way out — making promises like the following, which were copied from one firm’s Web site:
Your lender WILL NOT be able to call you in attempt to collect!
Your lender WILL NOT be able to collect any deficiency or loss they may receive by you walking away!
You WILL be able to stay in your home for up to 8 months or more without having to pay anything to your lender!
You CAN have the foreclosure REMOVED from your credit!
The catch for these extravagant claims is, “IF you qualify….” Qualifying to be able to avoid deficiency, for example, means living in one of the only 2 states in the country in which it is illegal to collect deficiency judgments — or having no money, in which case the last thing you want to do is give $1,000 to a company who does nothing you can’t do yourself for free. Time Magazine ran a story in June which stated that by and large these outfits, which charge cash-strapped homeowners about $1,000, perform services that homeowners can get for free elsewhere–and the worst ones may do nothing but “handholding” after taking your money.
And removing the foreclosure from your credit? If it sounds too good to be true….remember all those scams a few years ago involving companies promising to make bad credit histories “disappear?” Too good to be true, but a lot of people lost money, and some even found themselves in hot water for committing fraud.
So ignore the extravagant claims and avoid these sleazy companies. Your best (and cheapest) sources of help don’t cost a thousand dollars. Time suggests you first contact your lender, write a letter documenting your circumstances and asking for help, and turn to non-profit housing counselors for assistance if you need it. And if you are solicited by these companies? Remember the “weasel words” typically found in advertisements for questionable products. “Actually results will vary,” “Results not typical,” or in this case, “If you qualify….”
Loading ...
Recent Comments