As most Americans know, America is experiencing its worse foreclosure
crises in history caused, in part, by adjustable rate subprime loans
and job losses. Now, the government is offering a couple of alternatives
to the constant flow of foreclosure homes onto the market. The problem is,
I don't think either plan will produce significant help for those in trouble.
I have outlined both plans below, the purpose of this article is to explain
the pitfalls in both. I call the first plan which was unveiled in September
2007 -- plan one, also known as FHA Secure, and the second plan, unveiled in
February 2008--plan two, also known as Project Lifeline. I am not sure when
either plan will be activated, although in plan one a letter was sent to hundreds
of thousands of potential foreclosure victims. The letter is listed below.

Foreclosure rescue plan number one is for homes with FHA loans. These loans
have a maximum of $202,000, this may be increased in areas with high cost homes.

To qualify for the new program, FHA Secure, a borrower would have to prove the
original loan was being repaid until it reset to a higher rate, and he or she
must have 3 percent equity in the home. The housing administration does not
supply the mortgage loan but guarantees loans extended by banks and other lenders.

Foreclosure plan number two, dubbed Project Lifeline is for low cost and high
cost homes. It will give homeowners who are in foreclosure a stop on the
foreclosure process, then they will get 30 days to refinance. Six of the largest
banks in the United States will participate in the program.

The following is a copy of the actual letter sent to troubled homeowners for
rescue plan number one, FHA Secure.

Dear Homeowner,

Do you need help with your mortgage?

Your area is experiencing a disturbing home foreclosure rate that has accelerated
in recent months. News reports cite the damaging effects of "subprime loans" as
a major factor in the unsettled market. By focusing on education and safe mortgage
alternatives, though, the Federal Housing Administration (FHA) of the United States
Department of Housing and Urban Development (HUD) is working diligently to address
this unacceptable foreclosure trend.

Over the past few months, FHA has worked with mortgage loan servicers to identify
solutions for the crisis facing current homeowners. Your current mortgage does not
have to be FHA insured for you to benefit from our help. If you are facing financial
difficulties due to a recent or imminent mortgage reset, or other housing-related
difficulty, I urge you to contact us at 1-800-CALL-FHA or to visit www.fha.gov.
There you will have the opportunity to learn about foreclosure prevention,
legal rights, and credit counseling, among other topics.

Many homeowners may also be able to take advantage of our recently announced FHA
Secure program. This new program allows eligible homeowners to refinance into a
secure, fixed-rate FHA loan even if they are in default.

Additionally, a new partnership between mortgage companies and non-profit housing
counselors called HOPE NOW is available to you. Their mission is simple: reach out
to homeowners who may be having difficulty paying their mortgages. For more
information or to see if your mortgage company is a member of this caring coalition
please go to www.hopenow.com.

Again, please contact us at 1-800-CALL-FHA (800-225-5342) or go to www.fha.gov.
As part of the federal government, the Federal Housing Administration wants to
help you protect and preserve the American dream - your home.

Sincerely,

Brian Montgomery
Assistant Secretary for Housing-Federal Housing Commissioner

###--end of letter.

I will briefly state the reasons I do not think either program will substantially
decrease the number of foreclosed properties in the United States.

In my opinion FHA Secure will not help most FHA homeowners facing foreclosure;

First, if someone secured a home loan with FHA assistance and either put down a
large down payment or their home substantially increased in value, the $202,000 cap
would not pay off their mortgage for another loan.

Second, many homeowners will go into foreclosure applying for this process and
will not qualify.

Third, because of the current rapidly falling values of homes, most FHA homeowners
will not have 3% equity in their homes, but instead they will have a negative
home value, sometimes as much as 50%.

In my opinion Project Lifeline will not work because;

First, it only gives 30 days to find alternate financing. This is simply not
enough time for cash strapped homeowners in foreclosure to find alternate financing.

Second, many of the homeowners facing foreclosure are there because they overbought
for their income, hence they will not qualify for another loan that covers their
mortgage.

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