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.

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