What is the HOPE for Homeowners Program?
The HOPE for Homeowners Program was signed into law by the Bush Administration on July 30, 2008, promising to refinance mortgages through FHA for struggling and upside-down borrowers who meet certain criteria. It began on October 1, 2008 and ended September 30, 2011. The problem is many lenders were not buying into it, which sort of made the legislation, while well intended, worthless.
At first blush, the program sounds feasible. A home owner facing foreclosure allegedly can refinance an existing mortgage into a new mortgage at 90% of the home's newly appraised value (increased to 93% on May 20, 2009), providing the home owner qualifies and the existing lender agrees to participate.
How the HOPE for Homeowners FHA Refinance Program Works
Say, for example, homeowners purchased a home several years ago for $500,000. Today, that home is worth $300,000, which puts the home owner upside down by owing more than the home is worth.
FHA will insure a new loan of 93% or $279,000, which would effectively drop the mortgage payment about in half. To make the program work, the existing lender(s) needs to waive late fees, prepayment penalties and agree to release the mortgages; however, the lender is not required to participate.
Which Lenders are Participating in the HOPE for Homeowners Program?
As of early 2008, none. FHA had published a list of H4H participating lenders on its web site; however, they were mostly small mortgage brokers. I called Cynthia Ruiz at American Security Financial, since her company was listed, and asked if she had investors for these FHA refinances.
Ms. Ruiz said, "No, but we are taking applications and will give priority to those." When does she expect the major players to step forward and fund these loans? Probably in February of 2009, she responded. That date came and went, no lenders stepped forward.
Does FHA Write the Loans?
FHA does not make loans. FHA inures loans. FHA loans are funded through conventional lenders, which are approved to participate in the FHA program. As of early 2009, none of the recognized FHA-approved lenders I contacted had stepped forward to participate in the HOPE for Homeowners program.
The nationwide FHA maximum mortgage amount varies from state to state, subject to county maximums. Here is your county's FHA mortgage limit.
Borrower Qualifications for HOPE for Homeowners Program
The eligibility requirements fit many upside-down homeowners. There is no credit score requirement.
- The home must be a principal place of residence.
- Home owners can't own any other property.
- The existing mortgage payments must exceed 31% of the home owner's gross monthly income.
- The home owner did not obtain the existing mortgage by falsifying loan documents.
- The home owner has not been convicted of fraud within the past 10 years.
- The home owner is struggling to meet the mortgage obligations and can no longer afford to pay on the mortgage.
The catch is -- and you knew there was a catch, right -- the home owner must agree to give some future appreciation to FHA and the existing lenders. President Obama's Helping Families Save Their Homes Act of 2009 lets FHA and the existing lienholders collect 50% of the home's future equity. However, for some, a little equity down the road sounds better than no equity now and / or having no place to live.
Fred Chamberlin, senior mortgage consultant at Alpine Mortgage Planning in Eugene, Oregon, says banks might decide to fund these loans because banks have their own money and don't always sell the loans to investors. "That is why I think that maybe Wells Fargo and Countrywide might participate," said Chamberlin, adding that FHA will not insure the loan if the borrower fails to make the first payment.
Will Banks Choose a Short Sale Over the HOPE for Homeowners Program?
Granted, in a short sale situation, the bank is also paying a real estate commission, but some critics believe a short sale might be more beneficial to the lender than participating in the HOPE for Homeowners Program.
A short sale buyer might offer the seller a higher sales price than 93% of an FHA appraisal, which could net the existing lender more money, even after the lender pays closing costs. However, short sales are voluntary and sellers won't always agree to do a short sale, especially if sellers are offered an affordable option to avoid foreclosure or a short sale.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.