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.

About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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2 Comments on HomeSaver Advance: One Bad Loan Modification Idea

  1. wow, after trying to get help for a full year and falling behind 4 months now, I was finally offered some help… HOMESAVER ADVANCE!! AND ITS OCTOBER 2009!! Horrible.

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