HomeSaver Advance: One Bad Loan Modification Idea

About a year ago one of the dodgier ideas for helping homeowners cope with their mortgages was rolled out by Fannie. It was called the HomeSaver Advance (Ya gotta love the names they come up with). It’s turned out to be an unmitigated disaster.

The program extended unsecured loans to homeowners who were having trouble paying their mortgages due to “temporary” problems — unemployment, illness, etc. The funds were to be used to help make the mortgage payments until the borrower got back on his feet. The logic being, I suppose, that a problem with leverage is best solved by extending more credit.

Anyway, from HousingWire, here is how well it has worked:

“HSA is showing high redefault rates on the early offerings,” FHFA director James Lockhart noted in a Congressional report this week. “Performance on the February through April offerings shows a redefault [or recidivism] rate of almost 70%, which calls into question the program’s assumptions that borrowers have the capacity to make payments going forward.”

In other words this was one bad idea. I seem to recall a lot of commentary at the time that the program made no sense but live and learn, right. Admit it was a bad idea, bury it and get on with things. Well not so fast.

“The HSA is not an appropriate foreclosure prevention alternative, and must not be used, for a borrower with a permanent or long-term financial hardship,” Fannie officials said in the late-April report revising its heirarchy. Instead, the new heirarchy reccommends HSA as an appropriate alternative to the MHA modification program in cases where the borrower experiences only a temporary hardship and cannot qualify for MHA.

“Given the depth and scope of MHA, we anticipate a decrease in HomeSaver Advance volumes,” Fannie spokesperson Amy Bonitatibus tells HousingWire. “Although HomeSaver Advance loans continue to be a viable foreclosure prevention solution for borrowers facing a temporary hardship, other home retention strategies, particularly modifications, are becoming more prevalent based on assessments of the needs and condition of borrowers.”

Once again we learn that no government program, no matter how abject a failure it might be, ever perishes. Something to keep in mind as we accumulate car companies, take over student loans, regulate credit cards, dictate executive pay and generally just come up with more ideas like HSA that will prove to have disastrous results but live on and on.

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