Hope For Homeowners
Posted by Kevin Kueneke | Visited 2283 times, 2 so far today | Currently 3 Comments »
Part of the recently passed Housing and Economic Recovery Act (HR 3221) is the new Hope for Homeowners program. This is an FHA sponsored short-sale refinance intended to allow distressed homeowners keep owner occupied homes from going into foreclosure. Although lenders are not required to participate in the program, there will still be plenty of homes saved. Here are some basics:
• Principal residence only. 
• Existing loan must have been obtained on or before January 1, 2008.
• Borrowers can be up to date on their mortgage or in default, but they must prove that they will not be able to keep paying their existing mortgage (mortgage debt ratio must exceed 31% of monthly income) AND they must certify that they did not intentionally default on the mortgage for the purpose of obtaining the HOPE loan.
• Calculation of the new loan will be based on the borrower’s ability to make mortgage payments determined by FHA and the loan-to-value limited to 90% of the appraised value.
• The existing lien holder must waive any prepayment penalties and fees, including attorney and foreclosure fees if foreclosure proceedings have already begun.
• The existing lien holders must agree to accept the proceeds as payment in full of all indebtedness under the new loan (no 1099 from the lender for lost proceeds); all encumbrances must be removed.
• Those lien holders of existing subordinate mortgages will be entitled to future appreciation of the property. Standards and policies of the shared appreciation will be developed by FHA.
• The new loan must be a 30 year fixed rate mortgage.
• The interest rates and origination fees will be determined by the new Federal Housing Finance Agency, but will be comparable to market rates.
• The new loan amount cannot exceed $550,400 which is 132% of FHLMC loan limit established in 2007.
• The borrowers cannot put a new second lien on the property for 5 years after the refinance takes place.
• Income must be documented by income tax returns for the most recent two years.
• The borrower cannot have been convicted of mortgage fraud under Federal or State law during the past 10 years.
• The borrower must supply documentation to prove that they only own this one residence. If they own other properties, they cannot utilize this program.
• Borrowers will pay an Upfront Mortgage Insurance Premium (UFMIP) of 3% of the loan amount and an annual mortgage insurance premium of 1.5% of the loan amount. This is higher than the 1.5% UFMIP and 0.5% annual mortgage insurance of “regular” FHA loans.
• Equity Appreciation: upon sale or disposition of the property or subsequent refinance there will be shared equity on a graduated scale; HUD is entitled to 100% of the initial equity if property is sold or loan refinanced in first 12 months, 90% in months 13-24, 80% in months 25-36, 70% in months 37-48, 60% in months 49-60, and 50% months 61 and on. HUD will be entitled to 50% of any appreciation over and above initial 10% equity, regardless of future sale date.
• The program will be implemented October 1, 2008, and expires September 30, 2011.
As stated above, lenders are not required to participate and most likely will not assist certain borrowers whose written down loan amount is less cost effective than a foreclosure. That is, if the new loan amount that the borrowers can actually afford, based on verified income, is significantly lower than the possible post-foreclosure net proceeds, the lien holder will most likely choose to foreclose.
The official HUD website states that FHA will insure up to $300 billion in new loans under this program so for those borrowers that will qualify, this program is obviously good news and very welcome relief.
***As of October 1, 2008, HUD is encouraging all interested homeowners to contact their servicing lender regarding this program***
Another terrific, timely, and information article Kevin! Thanks for helping us separate fact from fiction….
Bob Z…
I guess I missed that one! I need to look into this more……
This is interesting. You seem very knowledgeable in your field.