In a December 17th Washington Post article, HUD Secretary Steve Preston declares the Hope for Homeowners program a failure. He places the blame on Congress for attempting to micromanage the program in the legislation instead of letting HUD iron out the details. The article also confirms what many have been saying – only 312 people have been helped by the program since it officially started at the beginning of October. The article quotes Secretary Preston

“What most people don’t understand is that this program was designed to the detail by Congress,” Preston said. “Congress dotted the i’s and crossed the t’s for us, and unfortunately it has made this program tough to use.”

FHA Commissioner Brian Montgomery was literally vocally attacked by lenders, housing counselors and real estate agents at a Hope For Homeowners training session in Atlanta. According to the article he described it as a “rock throwing session”. I’m not really sure what they expected. I guess Mr. Montgomery was obligated by his position to show up and at least try to explain the program.

The program was put into place filled with compromises that made it hopeless and impossible from the beginning. Anyone with an IQ above room temperature could see it, but it seemed to slip by Congress as they all rushed to take credit for saving 400,00 homeowners from foreclosure. The requirements almost seemed to be designed to be impossible to meet and the resulting loan essentially caused it to make more sense for borrowers to just walk away from the home than accept the terms.

To quote the Washington Post article again:

“You’re paying a premium to borrow the money already, and that ought to be enough,” said John Taylor, chief executive of the National Community Reinvestment Coalition “To me this falls into the category of, we want your firstborn.”

Of course, official Congressional buffoon Barney Frank – one of the top cheerleaders behind almost every wrong turn taken getting into this mortgage mess – blames the problems on FHA. Frank makes the case that certain elements of the Hope for Homeowners program had to placed there to make the program palatable to the American public. For instance, the requirement that any equity from selling the home must be split with the government. Quoting the article again,

“You’re not going to get a program approved that helps people refinance loans on their homes and then allows them to turn around the following year and make a profit on that home,” Frank said.

I don’t know what dream world he is living in where real estate values are going to go up that much by next year, but the first question that comes to my mind is: What is the government giving these people that is worth signing away any future equity? The answer is nothing. The lenders (or more specifically, the individuals, retirement funds and money market/mutual funds who own mortgage bonds) are being asked to take a loss, not the government.

Why not simply allow the lender to keep a lien on the property for the remaining amount of the mortgage which can’t be paid off right now. There was never any reason to filter the money through the government. Why not create some procedure similar to an FHA streamline refinance where people who have been making their payments on time for a set period of time could refinance as long as their payment wasn’t going down. Why such a rush to bail out Wall Street with a blank check, when no one is willing to give a similar break to homeowners who made a mistake.

Who knows. Maybe the powers that be will get the program fixed. Past experience doesn’t support that opinion though. If you are a homeowner in trouble, find out what you need to do to get a loan modification. Don’t keep waiting on an FHA program until it’s too late.

Here are the full details:

BUSH ADMINISTRATION ANNOUNCES FLEXIBILITY FOR “HOPE FOR HOMEOWNERS” PROGRAM
Changes will allow more struggling families to use the program and keep their homes

WASHINGTON – U.S. Housing and Urban Development Secretary Steve Preston today announced that the HOPE for Homeowners (H4H) Board of Directors has approved changes to the program to help more distressed borrowers refinance into affordable, government-back mortgages. The changes will reduce the program costs for consumers and lenders alike while also expanding eligibility by driving down the borrower’s monthly mortgage payments.

“Clearly, meaningful changes were needed. These modifications should increase lender participation and help more families who are having difficulty paying their existing mortgages, but can afford a new affordable loan insured by HUD’s Federal Housing Administration,” said Preston.

By taking full advantage of the new authority provided under the Emergency Economic Stabilization Act (EESA) of 2008, HOPE for Homeowners will provide additional mortgage assistance to struggling homeowners.

Modifications to HOPE for Homeowners include:

• Increasing the loan to value ratio (LTV) to 96.5 percent for some H4H loans;
• Simplifying the process to remove subordinate liens by permitting upfront payments to lienholders; and
• Allowing lenders to extend mortgage terms from 30 to 40 years.

“These changes will further encourage lenders to take a hard look at this program before heading down the path to foreclosure and will provide families with another resource to refinance into a loan they can afford,” said FHA Commissioner Brian D. Montgomery. “HOPE for Homeowners will continue to serve as another loss mitigation tool that can be used to help families keep their homes.”

HOPE for Homeowners will continue to only offer affordable, government-insured fixed rate mortgages. Further, this program will maintain FHA’s long-standing requirement that new loans be based on a family’s long-term ability to repay the mortgage. Only owner-occupants are eligible for FHA-insured mortgages.

Background

Increasing the Loan-to-Value and Adjusting Debt-to-Income Ratios

The program will increase the loan-to-value ratio (LTV) on H4H loans to 96.5 percent for borrowers whose mortgage payments represent no more than 31 percent of their monthly gross income and household debt no more than 43 percent. This change will expand the number of eligible borrowers. Raising the loan-to-value ratio reduces the gap between the existing loan balances and the new H4H loan and decrease losses to the existing primary lienholders. Alternatively, the program will continue to offer borrowers with higher debt loads a 90 percent loan-to-value ratio on their H4H loans. This LTV ratio will include borrowers with debt-to-income ratios as high as 38 and 50 percent. In conjunction with the LTV change, H4H will eliminate the trial modification that was previously required. This measure was too complicated and required delicate negotiations among the existing lienholders, the new H4H lender, and the borrower.

Immediate Payments to Subordinate Lienholders

H4H will offer subordinate lienholders an immediate payment in exchange for releasing their liens, to permit more borrowers access to the program. Previously, subordinate lienholders who released their liens were only eligible to receive a small recovery payment when the home owned by the H4H borrower was sold. Given the amount of time that would pass between the creation of the H4H and the ultimate sale of the home, as well as the tremendous market uncertainties, subordinate lienholders were not guaranteed any return at all. To address this problem, the subordinate lienholders may now receive an immediate payment at the time the H4H loan is originated.

Extending Loan Terms from 30 to 40 years

To assure that borrowers are put into the most affordable monthly payment possible, HOPE for Homeowners will permit lenders to extend the mortgage term from 30 to 40 years. For borrowers with very high mortgage and household debt loads, extending out the amortization period may reduce their monthly payments enough to make it possible for them to qualify for this rescue product and save their homes.

Consistent with statutory and regulatory requirements, borrowers must continue to meet the following criteria:

• Their mortgage must have originated on or before January 1, 2008.
• They cannot afford their current loan.
• They must have made a minimum of six full payments on their existing first mortgage and did not intentionally miss mortgage payments.
• The loan amount may not exceed a maximum of $550,440.
• The Upfront Mortgage Insurance Premium is 3 percent and the Annual Mortgage Insurance Premium is 1.5 percent.
• The holders of existing mortgage liens must waive all prepayment penalties and late payment fees.
• They do not own a second home.
• They did not knowingly or willfully provide false information to obtain the existing mortgage, and they have not been convicted of fraud in the last 10 years.
• They must follow FHA’s long-standing and strict policy of fully documented income and employment.

The HOPE for Homeowners program was authorized by the Housing and Economic Recovery Act of 2008. A Board of Directors was charged with establishing underwriting standards to ensure borrowers, after any write-down in principal, have a reasonable ability to repay their new FHA-insured mortgage. The program began October 1, 2008, and will end September 30, 2011.

The HOPE for Homeowners Board of Directors includes HUD Secretary Steve Preston, Treasury Secretary Henry Paulson, Federal Reserve Board Chairman Ben Bernanke, and FDIC Chairman Sheila Bair. They have named the following people to serve on the board as their designees: FHA Commissioner and Chairman of the Board Brian Montgomery, Federal Reserve Board Governor Elizabeth Duke, Treasury Assistant Secretary for Economic Policy Phillip Swagel, and Federal Deposit Insurance Corporation Director Tom Curry.

Read more about HOPE for Homeowners at www.hud.gov/hopeforhomeowners

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HUD is the nation’s housing agency committed to increasing homeownership, particularly among minorities; creating affordable housing opportunities for low-income Americans; and supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development and enforces the nation’s fair housing laws. More information about HUD and its programs is available on the Internet at www.hud.gov and espanol.hud.gov.

Nevertheless, I get an email or two every day from consumers and mortgage brokers alike asking me which lenders are taking part in the program. So I would be remiss in not giving out a link to the place where you can find the complete list of lenders who are taking part in the program. The list is updated on Fridays.

So here it is: Hope For Homeowners Lenders List

If anyone has any success (or horror) story about using  the H4H Program, I would love to hear about it.

If you are a mortgage broker, or loan originator, don’t give up on the FHA programs just because these new programs turn out to be a bust. Get some training on FHA guidelines and prepare yourself to help all the new buyers that are going to be coming into the market.

Here is a quick breakdown of some of the specifics.

Borrowers are eligible for the program whether they are current or delinqent on their mortgages provided that:

• they have not intentionally defaulted on their mortgage or any other debt.
• they have made a minimum of 6 full payments on their current loan.
• the home is their primary residence and they have no interest in any other property.
• they cannot have been convicted of fraud under state and Federal laws in the last 10 years.
• As of March 1, 2008, the borrower’s aggregate total monthly mortgage payment debt-to-income ratio (DTI) on all existing mortgages must be greater than 31 percent of the borrower’s gross monthly income.

The mortgage being refinanced must have been originated on or before January 1, 2008 and the present lender must:

• Waive all prepayment penalties and late payment fees (including insufficient funds fees) on the mortgage.
• Agree to accept the proceeds of the new H4H mortgage as payment in full
• Release their outstanding mortgage liens.

Any type of mortgage is eligible for refinancing under the H4H Program, including conventional (prime, Alt-A, subprime) or government-backed (FHA, VA, or Rural Development), fixed-rate or an adjustable rate mortgage.

The Upfront Mortgage Insurance Premium (UFMIP) is 3.00 percent of the base loan amount (loan amount excluding UFMIP) regardless of the loan-to-value (LTV) ratio.  The Annual premium (collected monthly) is 1.50 percent of the base loan amount.

The amount of the H4H mortgage may not exceed a nationwide maximum mortgage limit of $550,440.  The LTV of the H4H mortgage is limited to 90 percent of current appraised value of the property, including the UFMIP.

As a condition of the H4H mortgage, the borrower must share with HUD a portion of the initial equity, which is defined as the difference between the appraised value at the time of H4H loan origination  and the original principal balance on the H4H mortgage. Example:  Appraised value is $200,000.  Maximum loan to value on a H4H mortgage is 90%, or $180,000.  The equity amount that would be stated in the SEM is $20,000.

In the event of refinance, sale or other disposition, HUD will receive the following percentage of initial equity:

• During Year 1  100% of equity is paid to FHA
• During Year 2    90% of equity is paid to FHA
• During Year 3    80% of equity is paid to FHA
• During Year 4    70% of equity is paid to FHA
• During Year 5    60% of equity is paid to FHA
• After Year 5      50% of equity is paid to FHA

I haven’t run any actual numbers, but my own immediate impression is that if I were one of the homeowners that qualified for this program I would give it a quick “Thanks, but no thanks!” Most people won’t be in their homes long enough to make this deal with the devil worth it.

For the full text of HUD’s guidance for loan originators, click here.