Mortgage aid programs fall short, HUD official says

Retooling needed "Many Americans who should be getting help are not getting help," said Steve Preston, secretary of Housing and Urban Development.

WASHINGTON - Two government programs designed to help hundreds of thousands of delinquent borrowers avoid foreclosure are having negligible effects, a top Bush administration official acknowledged yesterday. One program will be revamped immediately, and the other possibly in the near future.

Steve Preston, secretary of Housing and Urban Development, said both private industry and government efforts have fallen short as the foreclosure crisis has exceeded all but the most dire forecasts.

"The response has not kept up with the need," Preston said in a speech at the National Press Club. "Many Americans who should be getting help are not getting help."

The FHASecure program announced in August 2007 has only assisted about 4,000 delinquent borrowers and "has really not met the need," Preston said. The other, Hope for Homeowners, has received just 111 applications from distressed homeowners since it was launched Oct. 1.

"Few lenders have actually signed up, and few borrowers are submitting applications," Preston said. "So clearly we needed to make meaningful changes."

The HUD chief outlined changes intended to encourage more participation in the Hope for Homeowners program, which refinances cash-strapped borrowers into new government-backed mortgages.

He also said that housing officials are reviewing whether additional changes to FHASecure might help that program gain traction.

Last week, lenders gave HUD officials an earful of criticism about the Hope for Homeowners program. They blamed drawbacks in the program's design for their lack of participation.

Under the new rules, lenders would be allowed to take a smaller loss. New loans can be made for 96.5 percent of the home's current value, rather than the previous level of 90 percent.

Even with the changes, borrowers would still have to pay back half of any appreciation to the government if they sell their house or refinance. The new guidelines only apply to borrowers who are spending up to 31 percent of their pretax income on their loans.

Preston also said that lenders who hold home equity loans or other second mortgages must not block the transaction.