The Bush administration implemented a program through HUD (Federal Department of Housing and Urban Development) called Hope for Homeowners, which began on October 1st, 2008. Under the program if you are in risk of default you may be able to refinance into a new FHA loan for 90% of the current appraised value of your home.
Current interest rates apply as the mortgage is written down to the new mortgage amount. The lucky people who modify into a new FHA-H4H loan should be able to retain ownership of their home through these difficult times.
Qualifications For Hope For Homeowners
To qualify for the program individuals should complete this quick checklist:
- Primary residence only, please – cannot own any other real estate.
- Current mortgage was originated before January 1st, 2008.
- At least 6 payments have been made on the current mortgage
- Can’t make the current mortgage payment without help
- Must NOT have been convicted of fraud within the past 10 years.
- Must NOT have defaulted on debts (although the current mortgage need not be current)
- Must NOT have given fraudulent information to obtain the current loan
- Mortgage payments for 2008 must exceed 31% of 2008 gross income
Normal closing costs apply, as do special FHA Mortgage Insurance Premiums. The new FHA-H4H loan also carries with it an equity and appreciation-sharing feature, which may make the program unpalatable for some. The homeowner must also agree not to take out a second loan for 5 years except in special circumstances. There is also a disincentive to the homeowner who sells his home prior to 5 years.
The national loan limit for this program is $550,440 although it is unclear from the HUD website if geographic limits also apply. If geographic limits do apply then the loan limit in Maricopa and Pinal Counties will be set at $270,050 beginning January 1st, 2009.
A brief portrayal of how this program is designed to work is offered below:
- John and Mary purchased their new Queen Creek home in July of 2005 for $280,000 obtaining 100% financing with a blended interest rate of 7.25%. Their current payments are over $2,100 including taxes and insurance.
John lost his job in April when the New Home Builder he worked for closed its doors. Mary’s income is not sufficient to make the mortgage payments and their savings are rapidly dwindling.
The home comps out at $120000. Ouch!
If John and Mary are able to convince their lender to give them a new FHA-H4H loan it would be in the amount of $108,000 (90% of the current value) and the balance of the old loan, roughly $181,000 would be written off by their lender giving John and Mary a fresh start with a positive equity position in the home. They now share that equity position with the FHA.
John and Mary would have to pay closing costs and prepaid items on the new loan of approximately $4,200 (going to vary by lender) and would also be liable for the upfront mortgage insurance premium of an additional $3,240 but their PITI payments at today’s low interest rates have now dropped to just below $825 a month; a savings of over $1,275 per month.
More information about the program: Hope For Homeowners Info
The kicker with this program is that it is voluntary, for both the homeowner and the lender. So while it is easy to imagine that there may be a few homeowners raising their hands saying pick me, pick me; the trick will clearly be to get their mortgage companies to agree.
Why Would A Lender Do A Loan Modification?
The foreclosure process is expensive for lenders and so avoiding having yet another foreclosure might be incentive enough to have them participate in the program.
The average time that a foreclosure spends on the market is currently just over 3 months and often the property value decreases as time goes by. During the holding period almost anything can and will happen to the property; it can become vandalized or worse, someone may become injured and sue.
The lender is also responsible for maintenance during the holding period as well as home owner association dues and insuring the property. The lender also faces stiff competition to get the home sold; eventually often having to offer high incentives such as paying the buyer’s closing costs in addition to their own. And of course, there will be real estate commissions on the sale.
And in the end, they have the appraiser to deal with. It is not uncommon for homes to appraise for less then the agreed upon price during these difficult economic times.
Even if you do not qualify for the HOPE program, there are many other forms of loan modification that may work for you. It is certainly worth the effort if you are able to keep your home and have the payments adjusted in a way that makes economic sense.
Article Sumitted by Jim Greisiger. Jim is a licensed Real Estate Broker in the state of Arizona. He has over 30 years residential real estate experience. For more on this topic from Jim real estate website please visit: Helpful Information On Hope For Homeowners In Arizona. Jim can be reached at 480.298.2884 or emailed at: jgreisiger (at) qwest.net.
