HOPE NOW Unveils New Guidelines, But Criticism Continues

Tue. June 17, 2008; Posted: 05:10 PM

(RTTNews) - An industry alliance formed to help fight the rising wave of foreclosures announced a new set of guidelines on Tuesday, but some critics remain skeptical about the organization's ability to provide real help for people in danger of losing their homes.

HOPE NOW, a voluntary industry organization formed last summer under the guidance of the Treasury Department, said the new guidelines were designed to bring together loan servicers and borrowers to work towards additional modifications.

Government officials have praised the new guidelines as a way to alleviate the impact of the recent crisis in the mortgage industry. However, other groups feel that HOPE NOW remains too weak to promote any real improvement and have called on Congress to pass legislation to help take the pressure off at-risk home owners.

Treasury Under Secretary for Domestic Finance Robert K. Steel said of HOPE NOW's announcement, "the HOPE NOW procedures announced today will allow even more homeowners to get help faster."

He added, "We are pleased to see the alliance members continually making improvements and expect them to maintain their efforts."

The new guidelines encourage mortgage industry participants to offer options to help borrowers through loan modifications, repayment plans, and possible delay of monthly payments or foreclosure proceedings altogether.

The new guidelines also require mortgage industry representatives to meet deadlines when responding to homeowners who have contacted the alliance seeking assistance.

The alliance has been criticized for failing to achieve its desired goals of actually modifying loans to prevent foreclosure. Despite posting a record number of loan alterations in April, over 80,000 homes around the country went into foreclosure - placing the nation on track for over 1 million foreclosures in 2008.

"As we have said, there is no one silver bullet to address every housing challenge, but if we continue pursuing a series of measures and initiatives, we can have a maximum impact," Steel added.

The latest announcement from HOPE NOW has already come under fire by some who feel the organization remains too weak to affect real change. Kathleen Day from the Center for Responsible Lending says that the voluntary structure of HOPE NOW is not strong enough to combat the severe housing crisis.

"The (foreclosure) problem is outpacing any voluntary efforts," she said, adding, "is (HOPE NOW) better than nothing? Barely."

Rather, she encouraged action by Congress to pass legislation modernizing the Federal Housing Administration as well as changing bankruptcy laws.

"The big problem with HOPE NOW is their numbers are not transparent," Day explained.

In April, the organization HOPE NOW reported a total of 183,000 loan workouts, the highest monthly total since the organization's inception in July 2007.

However, 106,000 of the prime and subprime loan workouts in April were repayment plans. These repayment plans allow borrowers a longer time to repay the loans without actually reducing the total amount owed.

"A repayment plan is not the same as a workout plan," Day said.

The repayment plans can leave some still vulnerable to resets from their adjustable-rate loans, while others see only a delay of painful decisions regarding their homes.

The remaining 77,000 workouts in April - 42% of the total - were loan modifications, which reduce the loan balance or interest rate. In addition, over 80,000 homes went into foreclosure in April.

Day compared HOPE NOW's efforts to using buckets to catch water from a severely leaky ceiling. Every new set of guidelines was like adding another bucket without actually patching the leaking roof.

"Letting the free market fix this is crazy," Day said. "This is like saying let the free market fix Katrina."

The HOPE NOW alliance was organized at the very beginning of the housing crisis, just before subprime markets began to unravel in July 2007. It was formed with the help of Treasury Secretary Henry Paulson and members from Housing and Urban Development. The agency has reported helping 1.2 million homeowners avoid foreclosure.

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