Battling Foreclosure: The HOPE NOW Alliance Strategy
The HOPE NOW Alliance is a partnership between mortgage market organizations (lenders, mortgage servicers, investors) and counseling agencies, and was created in October, 2007, to "maximize the preservation of homeownership while minimizing foreclosures." The Alliance is run by the Housing Policy Council which operates under the umbrella of the Financial Services Roundtable, a financial services lobby.
Why It was Created
Homeowners began defaulting on their mortgages at a record-setting pace in the early part of 2007. In 2008, mortgage delinquencies climbed to their highest rate in 23 years and, according to the Mortgage Bankers Association, home foreclosures hit an all-time high. The national foreclosure rate is expected to continue its climb in 2009, as the economy tightens, homeowners lose their jobs or take reductions in income, home values continue to decline in many communities nationwide, and many adjustable-rate mortgages continue to "reset" to higher interest rates. (For more, see The Fuel That Fed The Subprime Meltdown.)
How It Works
The Alliance's primary method of helping to stem the rising tide of foreclosure has been to directly contact homeowners who have fallen behind on their mortgage payments with an offer of free foreclosure prevention assistance. Homeowners who are either already behind on their mortgage payments, or are afraid that they will not be able to keep current on their mortgage, are encouraged to contact their lender or call the HOPE hotline (1-888-995-HOPE) for help from a HUD-approved housing counselor.
The Alliance launched with an ambitious plan to reach nearly 250,000 at-risk homeowners, and within four months expanded from direct mail and broadcast advertising to face-to-face lender-borrower meetings through a "national homeownership preservation tour." Within nine months of its launch the organization announced it had already helped more than 1 million homeowners to avoid foreclosure.
In June, 2008, the Alliance announced that it had created new guidelines for mortgage servicers when working with homeowners to prevent foreclosure – an industry first. The far-reaching guidelines included first-ever guidance on dealing with second mortgages and short sales. Second mortgages present a real difficulty for distressed homeowners trying to refinance because both lenders (the institutions that made the first and second loans) have to agree that both loans should be modified. (For more, read Saving Your Home From Foreclosure.)
While the Alliance had reported seemingly-impressive numbers in June, 2009, numerous criticisms have been lodged against it. It's not clear that its efforts have had a significant impact on distressed borrowers' ability to remain in their home long-term.
Critics point to the fact that the Alliance is too strongly tied to the lending and financial services industry, a point that seems to be proven in some of the comments made by George Miller, Executive Director of American Securitization Forum. While he was quoted in the press release announcing the formation of the Alliance that the group would implement procedures "to keep borrowers in their homes," in a later April 2, 2008 New York Times article, Miller admitted that his firm "represent(s) the interests of investors and we want to minimize losses on bad mortgages and maximize recovery."
And therein may lay the rub.
Repaying the Debt
While the Alliance publicized that its counselors had helped homeowners identify possible sources of assistance or obtain help such as a loan workout, a loan modification and/or a revised loan repayment plan, critics charged that most callers were offered repayment plans which were considered less effective than workouts or modifications.
Repayment plans are a way that banks work with borrowers to ensure that they are able to get caught up on late payments and get current on the original loan. However the loan itself is not fundamentally changed to become more affordable for the borrower. Repayment plans are criticized as "temporary fixes" and critics question how a homeowner that could not afford the terms of the original mortgage will be able to do so again since a repayment plan does not reduce the amount owed.
However, a modification is a permanent change to the underlying loan and can include options such as freezing the interest rate on a mortgage instead of allowing it to reset to a higher rate as it was scheduled to, extending the payment period/life of loan.
Mortgage lenders and servicers were reluctant to undertake loan modifications or workouts for fear of losing money on the loans and their need to maximize recovery rates. Workouts or loan modifications would likely involve lowering interest rates or the principal owed on the loans, and lenders are concerned that investors who hold securities backed by those loans will take legal action over the loss of promised or anticipated return. (For more, read American Dream Or Mortgage Nightmare? and ARMed And Dangerous.)
In addition, local housing counseling groups across the country had voiced frustration that the Alliance did not have enough trained counselors to answer calls and provide adequate case analysis for callers. While the Alliance reported an average of 3,000 calls inbound to their 1-888-HOPE-NOW phone number, the Homeownership Preservation Foundation reports that a low percentage (4%) actually spoke with a counselor.
While the HOPE NOW Alliance may have succeeded at raising awareness among distressed homeowners of the need to work with lenders and housing counselors to avoid foreclosure, it's unsure whether or not the group can overcome some of its inherent weaknesses - most notably its lack of an adequate number of trained housing counselors and its close affiliation with firms which represent investors' interests. Only time will tell if it has the resources – and its participating lenders have the financial motivation - to help stem the foreclosure rate in a meaningful, long-term way. (To learn more on the subprime mortgage meltdown, see our Subprime Mortgage Feature.)