Hope for Homeowners Program

Prior to all of the chaos surrounding the $700 billion bailout bill, the government was working on the Hope for Homeowners program which was authorized by the Economic and Housing Recovery Act of 2008 and went into effect October 1st and end September 30, 2011.

Since President George Bush signed this into law on the 30th of July, the Hope for Homeowners’ team has been working to get the program off of the ground as directed by Congress.

The Hope for Homeowners Program is intended to give homeowners, well you guess it, hope, and chance to refinance into an FHA loan. These FHA loans would insure as much as $300 Billion, but are banks going to be willing to participate?

The X’s and O’s of the new Hope for Homeowners program couldn’t be released until Oct. 1st, and it’ll take a little bit of time for FHA loan lenders to implement this into their guidelines.

But, here are a few of the requirements:

1. You must occupy this property as you primary residence.
2. You do not have to have an existing FHA loan.
3. You must have closed on your home prior the January 1, 2008.
4. You must have made at least six on-time payments.
5. You do not own a second home.
6. You can prove hardship that your circumstances have changed and that you are no longer able to afford you monthly mortgage payment. (I’ll cover this later)
7. Your mortgage payment is 31% or more of your gross monthly income as of March of 2008 (standard FHA loan qualification).
8. You have not been convicted of fraud in the past 10 years.
9. The loan amount can not exceed  $550,440.
10. The up-front mortgage insurance premium is 3% and the annual mortgage insurance premium is 1.5%
11. Your current lender must waive all pre-payment penalties and late payment fees.
12. 2nd and 3rd mortgages must release their outstanding mortgage liens.
13. The borrower must agree to share with FHA both the equity created at the beginning of this new mortgage and any future appreciation in the value of the home.
14. You can not take out a second mortgage for the first 5years of this FHA loan unless there are some emergency repairs that you need to make to the property.

This plan is intended to helping approximately 400,000 struggling homeowners… hmmm, nationwide 252,363 homes received at least one foreclosure-related noticed in June of this year. This is in no way going to clean up the mess that we are in by any stretch, but at least this is going to give hope for 400,000 homeowners.

The biggest problem that I see is the fact that most likely you bought your home fairly recently and that you either haven’t built enough equity or more than likely your property has depreciated. The maximum loan-to-value for the Hope for Homeowners program is 90% that means that if your property is worth (as of today’s appraisal, not what you bought it for) $100,000 then they will only lend $90,000.

Included in that 90% loan to value you must included the required 3% mortgage insurance premium, so basically the maximum loan-to-value is 87%.

Realizing that most Americans’ homes have depreciated in the past several months, your only option would be to approach your current mortgage company, let them know that you have applied for the Hope for Homeowners program, and ask for them to accept a payoff for less than what is actually owed. Sort of like a “Short Sale”.

Most people might initially think that this is much tougher than is really is. I just helped one of my clients negotiate a loan modification package which reduced her 1st mortgage interest rate from an 8.375% down to a 5.375%, and we also negotiated the second mortgage from $52,000 down to $2,500. They also reduced the interest rate on 2nd mortgage from a 12.375% down to a 8.00% spread out over 30 year, instead of the 15 year balloon that it was originally structured as.

So these lenders are willing to negotiate, because they don’t want all of these empty foreclosed homes on their books.

I will continue to follow this program please subscribe to this feed to be alerted.

FHA Secure

I found a very interesting article by the San Francisco Chronicle. The original post can be found here.

Alphonso Jackson, secretary of the U.S. Department of Housing and Urban Development, is in California this week to discuss the Bush administration’s response to the foreclosure crisis. He’ll address the Commonwealth Club in San Francisco today, then travel to Southern California to visit community groups.

[ Despite crisis, mortgage modifications rare]

HUD oversees the Federal Housing Administration, an agency created during the Depression to stimulate home ownership. To increase liquidity, FHA buys and insures bank-issued, fixed-rate mortgages for challenged borrowers, but it is confined to loans of less than $362,790, which is why it has only a minimal presence in high-cost states such as California. Borrowers pay insurance premiums of 1.5 percent of the loan value up front plus 0.5 percent of each monthly payment for a certain time.

HUD wants to update the program by increasing the FHA’s loan limits; matching insurance premiums with a borrower’s credit profile instead of charging flat rates; and eliminating the 3 percent down payment requirement. (A temporary increase in FHA loan limits is part of the economic stimulus act signed by the president in February, but it lasts only until year’s end.)

Separately, on Monday, Hope Now, the administration’s foreclosure prevention coalition with lenders, said it had reworked more than 1 million mortgages for at-risk homeowners since July. About a quarter of them were loan modifications, in which lenders froze or reduced interest rates. The rest were repayment plans.

Jackson spoke by phone with The Chronicle Monday morning. The following has been edited for length and clarity.

Q: How is the administration addressing the rising tide of foreclosures?

A: We’re doing everything in our power to make sure we assist homeowners. Some months ago, in August, I announced FHA Secure. It simply says that if a person has paid their house note on a timely basis until the teaser rate jumped substantially, we’re willing to work with those persons to make sure they stay in their homes. We have had over 300,000 applications and have helped finance 100,000 people to stay in their homes.

More important is counseling for home buyers. Too many people do not get the right kind of counseling. They should know exactly what they’re getting when they decide to buy a home and be able to read and understand the fine print.

We want safer mortgages. That’s why we go out of our way when people (face) foreclosure to work with them. We’ve gone from $10 million in (federal funds for) housing counseling to over $50 million.

Also important is that we’ve gotten the (lending) industry to work with us to help people. (The administration has said banks agreed to freeze interest rates for some borrowers and to temporarily halt foreclosure proceedings for others.)

Q: Many consumer advocates have said the administration response has been too little, too late. You said FHA Secure has helped 100,000 people, but that’s a fraction of some 2.1 million expected to go into foreclosure in the next 18 months to two years.

A: (FHA Secure) won’t address all the problems. If Congress can reconcile the FHA Modernization Act, we can serve another 800,000 families. Before, FHA loans were limited to $362,000. With the economic stimulus package, that can go to $729,000, which will help people in California and the East Coast.

Q: When will you start making the higher-limit FHA loan under the stimulus plan? How do they work?

A: They (were) available as of (March 2). We buy the existing mortgage (made by a lending institution) and we make money from that mortgage. It’s not like we make the mortgage ourselves.

Q: You became HUD secretary in early 2004. Subprime lending started taking off around then and peaked in 2005 and 2006. Why didn’t anyone in the administration foresee problems with giving mortgages to people who could not afford to repay them? Was there any awareness that these loans were made disproportionately to minorities?

A: We did see it. That’s why three years ago we started pushing for FHA modernization where we would have the flexibility to (guarantee) loans.

Lots of loans were made by the seller down-payment companies. They did not check credit. Lots of loans were made over the Internet. Lots of loans were falsified income. We saw this coming and we tried to head it off. That’s why we introduced the legislation. Every year it passed the House unanimously but the Senate would never take it up. Because of the crisis, the Senate is finally taking it up this year.

Q: Why didn’t anyone act to rein in potentially abusive lending practices?

A: We didn’t have the ability to do that. We really did not. This is a free-market system. We can’t tell banking institutions how to operate. They do that themselves. We can’t tell mortgage brokers and insurers how to operate. Congress now is looking at legislation to address just those issues.

Q: What is your prediction of how much home prices may decline nationwide and how long it will be before the housing market reaches bottom?

A: I think that probably we are 12 to 18 months away from the bottom. I think we will not see many more substantial (price) drops of homes than we’ve seen already. We still have an inventory of existing homes, that has gone from 4.5 months to 10.5 months to sell (all the homes currently on the market). We’re not creating new inventory like we were just eight months ago. If we continue to hold the pattern we have with the strong economy we have, I think we’ve seen the worst of it already.

If you go

Who: U.S. Department of Housing and Urban Development Secretary Alphonso Jackson

What: Address on solutions to foreclosure crisis

Where: Commonwealth Club of California, 595 Market St., San Francisco

When: Today; check-in 11:30 a.m., speech at noon

How: Call (415) 597-6705 or register at www.commonwealthclub.org. Tickets are $8 for members, $15 for nonmembers.

E-mail Carolyn Said at csaid@sfchronicle.com.