On October 1, 2008 the government launched Hope for Homeowners; but the program designed to help as many as 400,000 struggling borrowers facing foreclosure seems to have fizzled out. In the plan’s first month fewer than 100 homeowners facing foreclosure applied to the program and now the Federal Housing Administration has pulled back its ambitions and projects that only about 13,300 homeowners facing foreclosure will benefit from the program in 2008. But that’s not all, many homeowners who apply for the plan in an effort to avoid foreclosure will actually be ineligible for the program. According to the FHA, only 1,200 out 23,000 will actually be eligible for the program designed to avert foreclosure.

Hope for Homeowners was designed to help borrowers facing foreclosure by restructuring their mortgages and creating more affordable payments. But the problem has been that in order for troubled borrowers to participate, mortgage lenders must accept the new terms which states that the new loans cannot exceed 90% of the home’s value. Anyone who has even slightly aware of the current real estate market knows that these homes are worth far less than the mortgages homeowners are paying.

Creating new loans which are no more than 90% of the homes’ “true value” cuts into mortgage lender’s profits. Most mortgage lenders don’t want to cut into their profits. What motivation do these lenders have to participate in this program and avoid foreclosure? Very little motivation, this is why this program has failed miserably at reducing foreclosure. Many of these homeowners would be better off filing for Chapter 7 or Chapter 13 bankruptcy and saving their homes while protecting other assets.