Hope Now? Well, maybe not

WASHINGTON – Last October, the Bush administration jump-started a plan to aid troubled borrowers and bolster the housing market. Its Hope Now initiative has been playing catch-up ever since, at a pace that might never match the clip of the foreclosure crisis.

The middlemen who collect mortgage payments, known as loan servicers, have ramped up efforts to modify troubled loans, but foreclosures are still piling up and homeowners are still lining up for help.

One possible reason Hope Now is coming up short: lack of staffing. The Hope Now initiative has three permanent staff members, who coordinate a broad network of mortgage companies and nonprofits. Dissatisfied lawmakers are pushing for an expanded federal government role.

The Minneapolis-based Homeownership Preservation Foundation – which manages the 1-888-995-HOPE hot line – has boosted the staff at 10 credit counseling agencies nationwide to 450 from more than 60 a year ago. Calls to the hot line have grown to 250,000 in the first quarter of 2008, from about 30,000 in the July-September quarter.

But still, housing counselors say getting someone on the line who can help is tough.

“It’s designed in a way that only a small percentage of people even qualify for help,” said Ira Rheingold, executive director of the National Association of Consumer Advocates.

That design, say critics, also favors lenders over borrowers, a bias exacerbated by its reliance on voluntary industry participation.

Some program participants echo critics’ concerns.

“The scale and scope of the problem is much broader and much deeper … than we thought,” said Ken Wade, chief executive of NeighborWorks America, a network of housing organizations.

Faith Schwartz, the coalition’s executive director, defended the group’s efforts.

“Having this alliance is much more helpful than not having this alliance,” she said.

This week, Hope Now will release its results through February. According to Hope Now, more than 1 million borrowers have been helped since last summer. But most of that help – 70 percent – was through temporary repayment plans, not permanent loan modifications.

Nearly four months ago, as part of Hope Now, the Bush administration announced a five-year interest rate freeze for mortgages due to reset at dramatically higher levels. For “people who are worried about staying in their home, there is help available,” President Bush said last week at a Freehold, N.J., credit counselor that’s part of the Hope Now effort.

But being worried didn’t qualify homeowners for a rate freeze. A group representing mortgage investors, the American Securitization Forum, decided what did – and its criteria were tight. For example, if a monthly loan payment was set to rise by less than 10 percent, borrowers didn’t get help. The Federal Reserve’s recent interest rate cuts have resulted in fewer payments jumping that much, shrinking the pool of qualifying borrowers even more.

Given these snags, homeowners such as Deb Westfield have found little hope.

Westfield, 37, and her husband, who live outside Minneapolis, have been unable to negotiate a modification or refinance their 30-year fixed-rate mortgage, taken out in fall 2006 at rate of 9 percent – much higher than prevailing rates at the time.

Like many borrowers, they used home equity to pay off other debts. With penalties, their mortgage has grown to more than $400,000 on a house they bought for $290,000 in 2003.

Westfield regrets refinancing with a lender who, she says, initially promised an interest rate of around 7.5 percent and raised it to 9 percent at the last minute. That loan has been bought by a Citigroup Inc. division, which is part of the Hope Now coalition.

“I always feel like I’m backed up against the wall,” said Westfield, who is three months behind on mortgage payments.

A Citigroup spokesman said, “We have spoken to the customer and believe we may be able to assist them.”

Housing advocates say in-person help is more valuable than phone assistance.

“It’s very common that you’re talking with somebody that doesn’t have the authority to do the kind of loan modification that people really need,” said Bruce Dorpalen, director of housing counseling at Acorn Housing Corp., a nonprofit housing group based in Philadelphia.

And loan servicers, even if they do have authority, have piles of modifications to wade through.

More than 223,000 homes across the nation received a foreclosure-related notice in February, according to Irvine, Calif-based foreclosure listing service RealtyTrac Inc. If February’s pace continues thorough 2008, around 2.7 million U.S. homes will face foreclosure, up from 1.1 million in 2007.

Homeowner in foreclosure face a quick track toward home loss.

The average foreclosure for a subprime loan took about seven months in January, down from about 81/2 months a year earlier, Deutsche Bank analyst Karen Weaver wrote last month. Part of that decrease is because the states where foreclosure rates are the highest – California and Nevada – allow speedy foreclosures.

Mortgage servicers defend their record, saying it’s not in their interest to foreclose due to the sizable expense of selling off properties. They also acknowledge the challenge before them.

William Rinehart, vice president and chief risk officer with Florida-based Ocwen Financial Corp., said, “Just given the volumes and the capacity, sometimes every customer can’t be accommodated as quickly as the customer would like.”