FHA’s Hope for Homeowners Loan Revised – Will it Stop Foreclosures?
The Hope for Homeowners program has had very little effect in the mortgage refinance market in the effort to provide a lending alternative for foreclosure prevention. HUD reported that it received a total of 111 H4H loan applications in October and were not able to approve any of the loan applications. In addition, HUD said that it approved 88,784 FHA mortgage loans during the last few weeks of October.
Mortgage Brokers Network director, Steve Park said, “Clearly HUD and the participating FHA mortgage lenders are out of touch with what homeowners need for refinancing in this type of economy.” Park added that “good intentions and shallow lending guidelines will not get us out of this foreclosure crisis.”
HUD now says that it will provide new “flexibility” for the Hope for Homeowners program, something that certainly has not happened so far this year. According to HUD, “the HOPE for Homeowners Board of Directors has approved changes to the FHA program to help additional struggling homeowners refinance into more affordable, government-insured mortgage loans. These revisions will lower the product costs for borrowers and FHA mortgage lenders alike while also expanding eligibility by reducing the homeowner’s monthly loan payments.”
Proposed Modifications to HOPE for Homeowners Loans include:
___ Raising the loan to value ratio to 96.5% for some Hope for Homeowners loans;
___ Streamlining the process to remove 2nd mortgages by permitting upfront payments to subordinate mortgage companies
___ Enabling FHA mortgage lenders to extended amortization schedules from thirty to forty 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.”
Given that more than 8,000 a day receive foreclosure notices it would be great to have a robust, successful Hope for Homeowners program. In 2008 only 3,794 delinquent conventional borrowers were able to refinance with FHA home loans.
BACKGROUND
Increasing the Loan-to-Value and Adjusting Debt-to-Income Ratios
The program will increase the loan-to-value ratio (LTV) on Hope for Homeowners loans to 96.5 % for borrowers whose mortgage payments represent no more than 31 % of their monthly gross income and household debt no more than 43 %. 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 mortgage servicers. In addition, this FHA loan product will continue to provide borrowers with higher debt burdens a 90 % loan-to-value ratio on their FHA home refinance loans with the Hope for Homeowners. This LTV ratio will include borrowers with debt-to-income ratios as high as 38 and 50 %. 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 mortgage lenders, the new H4H lender, and the borrower.
Immediate Payments to Second Mortgage Companies
H4H will offer second mortgagors 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 lien companies were not guaranteed any return at all. To address this problem, the second mortgage companies 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 FHA mortgage 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 FHA home loan amount may not exceed a maximum of $550,440.
___ The Initial Mortgage Insurance Premium is 3% and the Mortgage Insurance Premium Paid Annually will be 1.5 %.
___ The mortgage holders of existing mortgage loans must waive all pre-payment penalties and late payment fees.
___ They cannot own a 2nd home.
___ They did not knowingly or willfully provide false information to obtain the current mortgage loan, and they have not been convicted of fraud in the last 10 years.
___ They must follow FHA mortgage underwriting policy of fully documentation that ensures income and employment.
The FHA HOPE for Homeowners Loan 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 insured FHA mortgage loan. 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. You can read more and get additional information about the FHA HOPE for Homeowners Loans at www.hud.gov/hopeforhomeowners.
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[...] standards set forth by certain FHA mortgage lending programs (Hope for Homeowners)indicate a mortgage payment based on a 31% to 38% HTI ratio is affordable. The FDIC Loan [...]
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