Why Has Another Government Plan To Stop Foreclosure Failed?

By Author: Nick Adama
Total Articles: 197
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The government, since the financial crisis began, has been offering one preposterous foreclosure help program after another in a blind attempt to keep property owners in their homes. All the while, the same banks and companies that helped set the mortgage market up for failure have been given essentially free handouts from Congress.

The latest government failure to be discovered is Fannie Mae's HomeSaver Advance program, which was begun over a year ago in February 2008. The brilliant plan was to allow servicing companies to give homeowners in financial hardships and facing foreclosure a personal loan. The idea was to give homeowners a line of credit they could tap into to pay their mortgages until they were back on their feet financially.

Hopefully, most people by now realize that a problem caused by too much credit and too little income can not be solved by more credit and an unchanged income. But this was the course of action that Fannie Mae embarked upon to assist borrowers in default of their home loans.

Now that Fannie Mae and Freddie Mac have become government run corporations, the failure of such ...
... programs costs American citizens directly, as they are providing some of the funds to bail out these companies and keep government foreclosure assistance operations going. And just as with a number of the other government solutions to foreclosure, Fannie Mae's HomeSaver Advance has been a disaster.

Close to 70% of the personal loans made through the program are redefaulting, putting the homeowners back into foreclosure. The only difference now is that they have even more debt to default on, and the American government has even more Fannie Mae debt on its balance sheet.

It seems that, with each new failure of a program to help homeowners in foreclosure, the American people have more of their money taken from them to provide additional funds to the companies or organizations offering the failing programs. And while all of these programs have benign-sounding names, they are offering little more than a false sense of security to borrowers who later fall back into foreclosure.

After the failure of this program, Fannie Mae has begun shifting its resources in the direction of mortgage modification programs, rather than extending personal loans to foreclosure victims. If the government's previous modification numbers are any indication, this move will result in an additional 10-20% of homeowners receiving assistance.

Of course, this still leaves 50-60% of homeowners receiving government sponsored or guaranteed modification programs back in foreclosure within six months. But at least it is not a 70% redefault rate, as with the HomeSaver Advance program.

Maybe, if the government comes up with enough foreclosure assistance programs, it will finally hit upon one that allows borrowers who can afford to pay their mortgages do so, and allows homeowners who can not keep their homes not become a huge drag on the housing market or economy in general. I am doubtful of this result, however.

Instead, the politicians seem to think that they can run the mortgage markets better than anyone, despite 50-70% redefault rates, allocating more than $300 billion to help a single homeowner, decrying "frozen" credit markets while imposing new limits on consumer lending, and taking resources from productive consumers to prop up bankrupt industries and companies.

But who knows? Maybe a relative handful of experts knows more about the economy than all the rest of us combined.
Nick publishes articles aimed at helping borrowers understand how various options to stop foreclosure operate, and which may be most effective for them. He publishes about such issues as how to hire the right personal bankruptcy lawyer, the dangers of a deficiency judgment after foreclosure, how to stop a sheriff auction, and more. Visit his site if you need help understanding how foreclosure and bankruptcy work, and what other alternatives you should consider when the bank is trying to take your property: http://www.mypersonalbankruptcylawyer.com/