President’s “HOPE” program

"Here are some of the preliminary details of the Bush administration's proposal. According to press reports, loans originated between January 2005 and July 2007 with first scheduled resets between January 2008 and July 2010 would be eligible. Priority for loan modifications would be given to borrowers with FICO scores less than 660 and that have not risen more than 10% since the loan was sold. Borrowers with FICO scores greater than 660 would require closer scrutiny (ie, additional labor by servicers). In addition, to be eligible, it appears borrowers cannot be more than 60 days delinquent, must occupy the property, and must have at least 3% equity in the home. The 60-day delinquency cut-off is important because the number of eligible borrowers could drop significantly if the restriction were to change to having never been delinquent.
Most of these filters are easily applied to screen eligible loans; however, FICO scores are not updated regularly enough in LoanPerformance (if at all, and the proposal to use FICO scores as an indicator of propensity to pay would require wholesale rescoring of mortgage loan pools) to determine which borrowers' FICOs meet the criteria. As a proxy, we assume that borrowers who have been current on their loans for the past 12 months presumably have seen a sufficient increase in their FICOs to meet the criteria, whereas borrowers who had an incidence of delinquency in the past 12 months have not. It is this latter set of borrowers that would appear to qualify for the freeze, which still leads us to the conclusion that rate freezes may be given to borrowers least likely to pay back.
Based on all the filters, we estimate that $115bn of subprime loans will be eligible. This compares with the $304bn of subprime loans facing reset from January 2008 through December 2010 ($227bn in 2008, $65bn in 2009, and $12bn in 2010). An average of 115,000 loans per month (averaging $19bn per month) are expected to have first resets through December 2008. The numbers drop significantly heading into 2009, with an average of 25,000 loans per month (averaging $5.5bn per month). While final details of the plan may differ, and implementation issues have yet to be worked out (ie, any large-scale modification proposal will require immense efforts on the part of servicers), our initial take on the proposal is similar to other government-backed plans put forth to date: while it may help on the periphery, it really just represents a band-aid fix for subprime RMBS investors. In addition, the hot-button issue of servicer liability for making (or not making) large-scale loan modifications remains a huge impediment."