Ascent Home Loans

As we sit and wait for what appears to be the Senate putting the FHASecure program on the back burner, we once again have the government, namely the Treasury Secretary traipsing out in front of the news media and declaring his support for”The Alliance” better known as the Hope Now Program, although, “The Alliance” sounds more like a group of superheros, I believe it is far from that.  Let’s take a look.

Altogether, the alliance is made up of  60 lenders and  loan servicer firms. Included in the alliance are a number of counseling firms that will help borrowers who were caught in the sub-prime mess, work out lower interest rates, payments, or help spread out the past due payments over the life of the loan.  If you look at what many of these alliance members have done already to rectify these problems it is minimal.  Yes, so far, Countrywide one of the alliance members,  has helped 40,000 borrowers.  Of the 40,000 borrowers, how many could easily re-qualify for the new adjusted loan payments?  We don’t know.   Countrywide has never mentioned if any of these 40,000 borrowers were already late on their payments or in fact on the verge of foreclosure.  My guess would be none of them were late or about to be foreclosed on.

If an alliance has been formed, there should be a standard solution amongst them, right?  No, unfortunately not.  The alliance which is still looking at borrowers situations on a case-by-case basis, does not have a standard solution to help sub-prime borrowers.  I believe these lenders and  mortgage service companies main solution will remain as it is now, strongly suggesting the borrower do a short sale on the home.  Followed by the much lessor used temporary repayment plan and even lessor used loan modification.

Although the solution seems to be a simple one of  just modifying the loan, why is it so hard to do?  When a borrower requests a modification to the loan agreement it is up to the borrower to prove that they cannot afford the upcoming higher reset interest rate monthly payment.  The burden of proof  is on the borrower.  Why are the mortgage service companies hoping the borrower can’t prove this?  Two reasons.

First, the service process is mostly done by computers, therefore the need for higher skilled and better paid employees are not needed.  This is the major area of the loan servicing business where the company can keep their profits up, by hiring below average paid employees.  If the loan modification process becomes the standard solution, these companies will now have to hire better skilled employees to handle the influx of loan modifications coming in.  What does that do their bottom line?  Starts cutting into profits.

Second,  the loan servicing company has an iron clad contract with the investor stating that the loan agreement cannot be changed in any matter, or the investor has the right to sue the servicing company.  Although the alliance was created to spur loan modifications, do the above reasons make it conducive for a loan service firm to continue to modify loan after loan?  No, it does not .

Therefore, exactly what will the purpose of “The Alliance” be?  Public relations pure and simple.  Think how a magician operates.  Make a lot of noise and flash over here, so you aren’t paying attention to what’s going on over there.  Will it be a total waste?  I believe it will help some borrowers, but certainly not enough to make even the slightest dent in upcoming sub-prime adjustable loan resets that are coming up in the foreseeable future.  I still believe the best solution is for the FHASecure program.  What we need is for the Senate to get back on track and get this program hammered out and passed.  Will it help all sub-prime borrowers?  No, but I think it will help many more than “The Alliance” will.