If you're new here, you may want to subscribe to my Blog Update Announcement List. Thanks for visiting!
From HUD: The Housing and Economic Recovery Act of 2008 amends the National Housing Act to authorize a new temporary FHA mortgage insurance program called the HOPE for Homeowners (H4H) Program. Under this Program, certain borrowers facing difficulty in paying their mortgages will be eligible to refinance into affordable FHA-insured mortgages. The H4H Program is effective for endorsements on or after October 1, 2008 through September 30, 2011.
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.
6 comments ↓
When is HUD really going to help homeowner’s? This is the 4th “no teeth” program they have come up with.
Congress will bail-out “Wall Street” with no oversight. Why can’t they bail-out “Main Street? This is ridiculous!!!
I would have to agree with the writer on this one…NO THANKS! This loan is a joke. FHA will collect its initial 3.0% and an additional 1.5 percent (per year) of the loan amount PLUS your equity. This seems like FHA named it the “HOPE” loan to discise the fact that they hope to make alot of money on it.
I actually think its a valid program. Perhaps because I may not know enough about it. In the example, the homeowner “loses” $20K in equity but remember - lets assume they owe $250K now (home prices have fallen 25% since their peak). The homeowner now owes $180k as opposed to $250K. Home values are unlikely to approach anywhere near the record levels we saw in 06 and 07. In the example, the homeowner gives up 50% to 100% of the equity of their home - yes - but, as it stands now, they have negative equity.
“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.”
My question: what incentive do banks with struggling FHA loans have to participate in the program? Aren’t they already guaranteed not to lose $$?
You are correct in that 100% of their negative equity is still a negative number so there is no loss there. In my opinion, values will even continue to fall in most of the areas where this program will be used the most so they most likely will never have any equity to split with the government. My prediction, though is that the terms under which most people will have to qualify for this program will be a huge barrier to it’s implementation.
In answer to your question about FHA lenders incentives, FHA lenders are already required by law to participate in foreclosure mitigation programs or they will be cut off from participation in the program.
This program is a hoax! I started researching the HOPE for Homeowners program right away as soon as the president announced it, but I can tell you it is a bunch of smoke. I have been to 3 banks where they said they were participants; I filled out the paperwork and was told we were good candidates only to find out the investors are requiring certain credit scores to be eligible when the program setup doesn’t require a credit score at all. When you home is in foreclosure you credit is atrocious. The legislation allowed the investors to make up their own rules when it came to this program.
This is a program set up to fail homeowners only to give the politicians a pat on the back. I would like to hear from the FHA President and my representatives on the take of what the investors are pulling.
They glorified this program to give us “HOPE” yet all it is, is a disappointment.
I agree with you to some extent. However it can take as long as 3 months after the official start date of a program like this for the secondary markets to accommodate it. In addition, since FHA is not actually making the loans, but simply insuring them, lenders have the right to add in their own qualifications to the government’s minimums.
Leave a Comment