Back in the fall, the Bush Administration announced the formation of the Hope Now alliance. The idea was to encourage mortgage lenders to enact a mortgage rate freeze and then re-do mortgage loan terms for subprime borrowers in danger of foreclosure. However, a few months later, the New York Times reports, there is doubt as to how helpful Hope Now actually is:

Even Hope Now says it is unsure how effective it is. The group does not break out the number of loan workouts that occur as a result of its efforts and those that might have happened anyway. Some people who work with Hope Now say it has done little to keep the housing crisis from deepening.

“Hope Now is a failure,” said Michael Shea, the executive director of the Acorn Housing Corporation, a large counseling agency that is part of the Hope Now alliance. “It’s industry-dominated.”

Others disagree, insisting that Hope Now is providing information to subprime borrowers and using the existing infrastructure to connect those at risk for foreclosure with mortgage lenders who are willing to help them refinance. The organizations itself claims that it has helped over one million so far.

Then next question, of course, deals with Hope Now’s sister program, Project Lifeline. This is meant to expand the number of people who have access to new mortgage loan terms. Is this program facing the same ambiguity that Hope Now does?

And do either of these programs actually help homeowners in the long run. For the most part, the new mortgage loan terms are likely to reflect mainly the needs of the mortgage lenders. The terms just make the loans more payable, ensuring that subprime borrowers can limp along for a few more years without folding.

Another issue is whether or not anyone is learning from the subprime lending crisis. Are mortgage lenders reconsidering those they will give mortgage loans to? Are borrowers reconsidering the types of home mortgage loan they really ought to have?

Or are we just learning the government is prepared to swoop in and “save” us when our bad decisions catch up with us?

Tags: subprime borrowers, Project Lifeline, home mortgage loan, mortgage lenders,
mortgage loan terms, mortgage loan blog, subprime lending

Every now and again a reader asks a great question that I feel should be answered for the benefit of all. Today’s question certainly qualifies:

All this talk of recession has me concerned about paying of my credit cards. Should I use a home equity loan to pay them off?

This is a great question, since it comes up so much in terms of debt consolidation. Many ads on TV, despite current worries over the mortgage market, still tout debt consolidation home equity loans as a way to pay off credit card debt.

Advantages to using a home equity loan to pay off credit card debt

There are some advantages to using a home equity loan to pay off credit card debt. There are tax benefits, and the interest is lower than what you are paying on your credit cards. Plus, it helps you get your payments down to one a month, making your personal finances easier to manage. That’s about where the advantages end.

Disadvantages to using a home equity loan to pay off credit cards

There are definite disadvantages to using a home equity loan to pay off credit cards. One of them is the fact that you will have to borrow against your home. This is a tangible asset. You are taking unsecured debt (credit cards) and securing it (with your home). Do you want to risk your home for credit cards?

And, with current mortgage market concerns, you may find that 1. you don’t have as much equity as you thought you did and 2. you could end up in a negative equity situation. Neither of these things is pleasant.

Other options

It is possible to consolidate your debt through other types of loans, or through an agency (watch out for fees, though!). You can also use aggressive debt reduction to pay off your credit cards faster, one by one. Also, if you are very disciplined, you can think about using credit card offers for 0% intro rates to your advantage. But be careful to cancel excess credit cards as you pay them off.

Tags: home equity loan, mortgage loan blog, home mortgage loan, pay off credit cards,
second mortgage, debt consolidation, aggressive debt reduction