HOPE for Homeowners Changes
On May 20, 2009, President Obama signed Senate bill 896 into law. It has many provisions meant to help stem foreclosures and deal with several problems that have developed since the HOPE for Homeowners, Home Affordable Refinances, and Home Affordable Modifications have been implemented.
Today, I’ll discuss the changes to HOPE for Homeowners.
HOPE for Homeowners (H4H) is a program for borrowers at risk of default and foreclosure. The program provides new, 30-year, fixed rate mortgages that are insured by the Federal Housing Administration (FHA). It may help you refinance your mortgage into a more affordable payment. H4H is voluntary. Both lender(s) and borrower(s) must agree to participate.
Your new H4H mortgage will be no more than 90% of the new appraised value of your home with the lender essentially writing down your current mortgage to that amount. This means your new mortgage will b
e no more than 90% of the current value of your house.
Yes…this is one of the few programs that actually allows principal forgiveness.
How it works…
* The new mortgage, if approved, will replace all of the current mortgages on your home. You will not owe any payments, fees or debts on mortgages you now hold.
* You must agree to share both the equity created at the beginning of this new mortgage and a portion of any future appreciation in the value of your home. I’ll write more on this later in the week.
* You will need to pay closing costs on the loan. You will receive a Good Faith Estimate of these costs.
What’s Changed?
1. No intentional defaults allowed.
You have to certify you haven’t intentionally defaulted on this mortgage, any other mortgage, or any other ’substantial debt’ in the last 5 years.
2. Cannot have a net worth of over $1 million
3. When you sell your home, you have to give HUD a percentage of any appreciation you have. HUD can now split that percentage with your first or subordinate lenders to give them an incentive to participate in the program.
4. HUD can pay incentives directly to your first or subordinate lenders to get the to participate. They can also pay incentives to servicers of new, successful HOPE for Homeowners refinances. So if you refinance with a new lender (which is allowed), HUD could pay incentives to numerous lenders.
6. Reduces fees associated with the program.
What it’s supposed to accomplish
One of the reasons lenders have been unwilling to use the HOPE for Homeowners program so far is because there was no financial incentive to do so. If they reduced your principle balance, they kissed it good bye forever. With these changes in place, they’ll be able to share in the appreciation if you sell or refinance (more about this later this week) in the next 5 years.
HUD can also pay incentives to your lenders which is supposed to give them similar financial incentives to the Home Affordability Refinance and Modification Programs.
Finally, by reducing the fees thy’re charging for the mortgages, they reduce the amount the lender has to forgive, which should make them more agreeable. Of course, we’re only talking about a 1.5 – 3% difference, so it’s not that big of an incentive.
What’s probably going to happen
Based on Freddie Mac’s Home Affordable Program guidance and my reading of the tea leaves, here’s what I expect to see happening.
First…it’ll take several weeks, even months, for FHA lenders to get the new program guidance in place and their people trained. So call them, but be understanding if they say they don’t have any answers yet.
Second…your lender will try to qualify you for a Home Affordability Refinance and/or Mod before they’ll consider H4H.
Third…your lender will probably try a traditional modification before they consider H4H.
Fourth…once all other options are exhausted…they may consider a H4H refinance.
What you should do
1. Go to the HUD and FHA sites for more info
2. Contact a HUD Housing Counselor
3. Call your lender to see if they’re participating
4. If you don’t want to refinance with your current lender, find a new, FHA-approved lender
5. Do what they tell you and be persistent.
6. Sign up for our site updates to get the latest news concerning foreclosure and government programs. Expert advice gets expert results after all.
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June 8th, 2009 at 9:32 am
This program should help those with upside down mortgages—But, with the banks’ latest tactics of selective holding of notes, we’ll see. Banks need the money–
Reply
July 31st, 2009 at 2:55 pm
Will this be considered a refi or a loan modification? What if you are already attemtpting a loan modification with your lender (CHASE) and they said two months ago they are not doing principle reductions? Must ones credit be good, we are already late on payments and have been attemtpting a modification for three months.
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Todd Temaat Reply:
August 2nd, 2009 at 2:04 pm
It’s a refinance.
It’s probably your lender will try to qualify you for every other program before they even look at this one because this one involves principle forgiveness and the others don’t.
The program is meant to help you whether you’re behind on your payments or not. They would prefer you weren’t, but the fact you’re behind is not going to disqualify you by itself.
Thanks for asking. I’d recommend asking Chase about it and/or going to a HUD Housing Counselor.
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