Loan Modification

Feds Try Again With Revamped Hope for Homeowners Program

By Peter G. Miller

With the signing of the Helping Families Save Their Homes Act is it now possible that the FHA’s Hope for Homeowners program will come to life?

The original HOPE program was intended to help people facing foreclosure by refinancing homes with lower-cost loans. That’s sounds great, but to get such new
mortgages it was first necessary to have lenders accept a partial pay-off of their original loan, not much of an incentive.

Results

Figures from HUD now show that as of the end of April, 916 Hope for Homeowners applications had been received — but only one H4H loan had actually been approved.

The new program still requires big lender concessions, but not as big as the first version of the program. Here are some of the revisions according to the House Financial Services Committee.

__ Change the upfront fee from 3% to ?up to 3%.? Translation: There could be no upfront FHA insurance fee if HUD elects instead of a flat 3 percent fee.

___ Change the annual fee from 1.5% to ?up to 1.5%.? Ditto. The annual insurance premium could be reduced to zero if that what HUD wants chooses.

___ Change the provision for HUD to receive 50% of appreciation profit sharing to authorize ?up to 50%? of such profit sharing; allow HUD to share this with the existing first or subordinate lienholders to induce loan writedowns; cap profit sharing at up to the appraised value of the property when the existing loan was made. Translation: The original program had an equity sharing provision which would have allowed the FHA to share in any profits from the sale of the property.

As was explained last October, “if the home is sold or refinanced, the homeowner will share the equity with FHA on a sliding scale ranging from a 100 percent FHA share after the first year to a minimum of 50 percent after five years. The lien holder that previously held the highest priority will receive payment up to a proportion of its original interest, not to exceed the amount of available appreciation. This type of delayed payoff will take place until all prior lien holders are satisfied or the amount of available appreciation is exhausted. All remaining appreciation is remitted to FHA.”

Translation: Yes, lenders will still have to effectively short-sell their mortgage to refinance and probably get less interest with any replacement loan (because rates have fallen), but they are now likely to get a share of the equity appreciation, if any.

____ Permit payments to servicers of existing mortgage loans on the property and to underwriters of the new FHA loan for each successful refinance. Translation: We’ll give servicers money for each home they get into the program.

___ Prevent borrowers with a net worth of more than $1 million from participating in the program.

Full post as published by FHA Mortgage Guide on May 25, 2009 (boomark / email).