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The Subprime Mortgage Meltdown: Find Help using the "Hope Now" Initiative

Last Updated: February 29, 2008

You found the home of your dreams, perhaps a few years back, when the housing market was sizzling red-hot. Your realtor and mortgage broker or banker were eager to help, getting a loan was a snap, there were so many lenders willing to hand out money to home buyers, no need to verify their income in many cases... what a trusting bunch we were! And, how short sighted "we" were, those people who signed on for loans that they knew they could not afford over the long term. The dream home has since transformed into a nightmare, with unaffordable payments due to the adjustable rates "we" didn't really pay attention to or just ignored while signing on the dotted line. You can't sell it, because everyone else is trying to unload their nightmares as well, and you either need a miracle or will facing a short sale, foreclosure, and possible bankruptcy if you don't do something quick. What to do?

A Little History

The crisis began in the United States with the bursting of the housing bubble and high default rates on "subprime" and other adjustable rate mortgages (ARMs). Subprime lending is a generally defined as the practice of making loans to borrowers who may not qualify for "A-grade" market interest rates because of problems with their credit history or the inability to prove that they have enough income to support the monthly payment on the loan for which they are applying. A long-term trend of rising housing prices and misleading loan incentives encouraged investors and homebuyers to take on new or additional mortgages, with many believing they would be able to sell quickly at a profit or refinance at more favorable terms later. However, once housing prices started to slide downward starting around 2006 in many parts of the country, refinancing became more difficult. Defaults and foreclosure activity increased dramatically as ARM interest rates reset higher. During 2007, nearly 1.3 million U.S. housing properties were subject to foreclosure activity according to a realtytrak.com report, up 79% versus 2006. If you spend any time watching or reading the news, you know that there has been very little indication that these numbers will improves anytime soon.

Help for Troubled Borrowers

With so many people in our country potentially facing unmanageable mortgage payments due to their subprime mortgages resetting to higher rates, troubled borrowers may be able to find relief from an initiative announced by President George W. Bush on December 6, 2007. The "Hope Now Alliance" is a cooperative effort between the United States government, counselors, investors, and lenders to help homeowners who may not be able to pay their mortgages due to escalating interest rates or other reasons. The most significant aspect of the initiative is an interest rate freeze that may give some borrowers unable to cope financially with the adjusting interest rates the time to work out a solution.

The most important thing you need to do if you are facing these issues, is to acknowledge the problem as quickly as possible and start the process of seeking a solution immediately, before it is too late. The following steps and recommendations provides some useful guidance for troubled borrowers who may be able to take advantage of the "Hope Now" initiative and gain the necessary assistance to prevent foreclosure or bankruptcy.

• Call the National Hotline established by the Hope Now Initiative immediately at 1-888-995-HOPE! The hotline is staffed 24/7 with HUD-approved counselors affiliated with the non-profit Homeownership Preservation Foundation.
• The counselor will gather information regarding the callers specific financial situation, in order to determine their eligibility to participate in the Hope Now initiative. (more on eligibility below). Be prepared to provide income verification and monthly expense information or you may have to make multiple calls.
  
• Based on the information provided, the counselor will explain what options are available and make a recommended course of action for the individual seeking assistance. Typically, this involves having the borrower call their mortgage servicer to initiate a workout plan.
• In some cases, the counselor may refer the individual to another counselor local to the borrower for in-person assistance. In other cases, the counselor will actually contact your mortgage servicer directly for you, providing you agree and provide written authorization for the counselor to act on your behalf.
• The loan servicer/lenders are more likely to negotiate and be flexible with market conditions as they are; the last thing they want is your property back. At Countrywide Home Mortgage, for instance, the country's largest mortgage lender, an estimated 82,000 loans have borrowers that are eligible for assistance under the Hope Now initiative, and they have a team of 3000 employees handling workout plans for these and other financial hardship cases.
• Servicers then determine the borrowers eligibility for refinancing based on credit history, FICO score, current loan amount and loan-to-value ratio. Although the initiative does not preclude it, servicers try to help borrowers avoid prepayment penalties in a refinancing.
• Some borrowers with ARM's who are current on their mortgage, but don't have the financial ability to stay current once their interest rate resets (and can't qualify for refinancing using traditional methods) may be eligible for an interest-rate "freeze". This freeze does not necessarily apply to those who are having difficulty meeting their mortgage committments due to job loss or medical reasons; however, loan servicers may still be willing to consider a "workout" plan for these circumstances, it is just not covered under the "Hope Now" initiative.
• The initiative also has provisions to assist homeowners unable to meet payments regardless of interest rate reset issues. In these cases, counselors look to find the least painful loss mitigation strategy, such as a short sale (selling at a deficiency) or deed in lieu of foreclosure (giving the property back to the bank, essentially).

Eligibility

The initiative applies ONLY to homeowners with purchase-money mortgages; NOT home equity loans. In other words, if you refinanced since your original home purchase, you are out of luck. Additionally, borrowers must have secured their financing during the "height" of the housing boom, defined by the initiative as between January 1, 2005, and July 31, 2007. Home owners are eligible for the initiative if they are current and expect to stay current after the rate resets, but are looking for a more appropriate loan; if they are current but face possible default due to the rate reset; or, if they are in default prior to the rate reset.

In Summary

The Hope Now initiative was not designed to simply bail out those who irresponsibly took out a mortgage they could not afford. According to President Bush, "There are some responsible home owners who can avoid foreclosure with some assistance". While clearly many of these problems may have been "self-inflicted" by people who were looking to make a fast dollar or given misleading information, the effect of the entire subprime fiasco on our economy is a problem that affects us all. Understanding what you can do to minimize the fallout while learning from your (or others) mistakes is certainly valuable information. If you feel you are in jeopardy of being able to meet your mortgage payment committments, the most important thing is to be proactive, and start the process of seeking a solution as soon as possible; there is help out there!

For more information, visit www.hopenow.com.