If you thought those auto sales numbers were ugly, just look the early results of the government's recently launched initiative to keep distressed borrowers in their homes.
The government expects only 20,000 troubled borrowers will apply to refinance into more affordable mortgages by next fall under a new program passed by lawmakers over the summer.
The $300 billion "Hope for Homeowners" program was begun Oct. 1. Designed by lawmakers eager to respond to the mortgage crisis, the Congressional Budget Office had projected it would let 400,000 troubled homeowners swap risky loans for conventional 30-year fixed rate loans with lower rates.
But the early results are discouraging: The government received only 42 applications in the program's first two weeks, according to the Federal Housing Administration. Since the applications take about 60 days to process, no loans have been approved.
Why the dismal turnout? Simple: banks aren't willing to take the voluntary haircuts that program participation requires, says Howard Glaser, a mortgage industry consultant and a HUD official during the Clinton administration. Moreover, he argues the figures demonstrate that the administration’s reliance on voluntary bank modifications isn't working.
"I would characterize the federal strategy to modify loans as 'pretty please, modify loans'--that's the message to lenders," Glaser says. "There is no carrot and there is no stick, so [the low figures] shouldn't be a surprise."
So what’s next? Glaser predicts the government will become more aggressive in its foreclosure prevention efforts after the election. "We're two years into this at this point," Glaser says. "So my own view is that when the new Congress and the president come back, we will be looking at mandatory elements of a foreclosure strategy."
The industry, of course, would fight that with full force.