November 24th, 2008 10:18 AM by Lehel Szucs
Important Information about Title IV of H.R. 3221 Foreclosure Prevention Act of 2008 - HOPE for Homeowners
The fear of unaffordable mortgage payments is a very common reality for many, many homeowners. Knowing which way to turn can be as confusing as the loan documents that put you in this situation in the first place. One option that has received a lot of attention is the FHA Housing recovery bill of 2008.
Title IV of HR 3221 is where you will find the information you have been looking for if you want to consider this program as an option to refinance your home. This program claims to serve approximately 400,000 home owners.
What hasn’t been getting a lot of press is what the requirements are for qualifying for this program. Following is an excerpt from this Legislative Notice issued June 18th, 2008 by the Senate Republican Policy Committee.HOPE for Homeowners Program - The bill establishes a new program entitled the HOPE for Homeowners Program. The program will be overseen by a Board made up of the Secretary of HUD, the Secretary of the Treasury, the Chairman of the Federal Reserve Board, and the Chairman of the Federal Deposit Insurance Corporation (FDIC). The Board will have the authority to develop standards within the framework of the legislation.
Eligible Borrowers - Only owner-occupants who are unable to afford their mortgage payments are eligible for the program. No investors or investor properties will qualify. Homeowners must certify, under penalty of law, that they have not intentionally defaulted on their loan to qualify for the program and must have a mortgage debt to income ratio greater than 31 percent as of March 1, 2008. Lenders must document and verify borrowers’ income with the IRS.
New Loan Amount - The FHA refinancing program will let borrowers who have defaulted on their existing mortgages to refinance into FHA-guaranteed loans. Lenders must write down the principal balance of the loan to no more than 90 percent of the current value (and in some circumstances less), and put the borrower in a 30-year fixed rate mortgage. Loans up to $550,000 are eligible. FHA is not allowed to charge insurance premiums sufficient to cover the risk of these borrowers, so it will result in a cost to the government, which will be paid for at first by funds from the Housing Trust Fund.
Equity & Appreciation Sharing -In order to avoid a windfall to the borrower created by the new 90 percent loan-to-value FHA-insured mortgage, the borrower must share the newly-created equity and future appreciation equally with FHA. This obligation will continue until the borrower sells the home or refinances the FHA-insured mortgage. Moreover, the homeowner’saccess to the newly created equity will be phased-in over 5 years.
Existing Subordinate Liens - Before participating in this program, all subordinate liens must be extinguished. This will have to be done through negotiation with the first lien holder.
Qualified Safe Harbor - The legislation provides loan servicers with an incentive to participate in the program by offering a safe harbor against legal liability.
Program Size - The program is authorized to insure up to $300 billion in mortgages and is expected to serve approximately 400,000 homeowners.Program Sunset - The program will begin October 1, 2008 and sunset on September 30, 2011.
The biggest challenges many folks will find with this program are the strict guidelines for qualifying. It is important that you completely understand this program when assessing your options.
In the borrower qualification guidelines issued by the Department of Housing and Urban Development on July 24, 2008 you will find even more restrictions….Here are some of the highlights:
Borrower must certify that they have not intentionally defaulted on the eligible morgage or on any other debt (false statement = fine and/or 5 years in prison)
Current lender must voluntarily forgive balance of existing loan to 90% of current market value.
No pre-payment penalties can exist
No subordinate financing (2nd mortgages) can exist. Subordinate lien holders must forgive liability.
Requires borrowers to share equity and any future appreciation in the value of the property with the Federal Government.
It does seem that this program is a viable option for those that do not plan to ever move or refinance (due to having to pay the Federal Government 50% of all future equity) and can qualify for an FHA loan using full income tax returns, pay stubs and asset documentation.
Loan modification is another option for folks that are looking for temporary to permanent payment relief and even buy some time to figure out what is best for you and your family. This can also be a confusing process due to an increase in loan modification Scams that are beginning to rear their ugly heads in these difficult times.
It seems that as quickly as sub-prime lenders where going out of business, new loan modification companies are opening up to prey on the folks that they took advantage of the first time!