Government Programs: HOPE for Homeowners

The “HOPE for Homeowners” Act was signed into law in July 2008, becomes effective October 1, 2008, and will run through September 30, 2011. It creates a new program within FHA to back FHA insured home loans to borrowers who have non FHA insured loans, are in distress and meet certain other requirements. The new loans will be offered by FHA approved lenders and will refinance loans at a discount for borrowers.

Q: Am I eligible for this program?

A: In order to qualify for the HOPE for Homeowners program, you must be an owner-occupant. This means you must be seeking to modify a loan secured by your residence. Assistance under this program is not available for investment properties or second homes. The loan must have originated on or before January 1, 2008. Monthly mortgage payments, including principal, interest, taxes and insurance, must be at least 31 percent of your monthly income, as of March 1, 2008. Lenders must document and verify borrowers’ income with the IRS.

Q: What are the loan terms?

A: The loan will be limited to 90% of the current value of the home, as determined by an appraisal by an FHA approved appraiser. The FHA loan limit will be 110% of the area median home price, with an absolute cap of $625,000. All loans will be fixed, 30 year loans. Borrowers must pay an initial insurance premium of 3% of the principal and an annual insurance premium, amounting to 1.5% of the principal. This cost will be rolled into the monthly payment.

Q: Are there other limitations on the loan?

A: To prevent a windfall to the borrower created by the new 90% loan to value ratio, the borrower must agree to share the newly created equity and future appreciation with the FHA. This obligation will continue until the property is sold or refinanced. There is a 5-year phase in of the equity to the homeowner.

Lenders must agree to take a loss comprising the difference between the mortgage balance and 90 percent of the home’s current value. Additionally, all subordinate liens must be released. This means that if you have a second, HELOC or other loan secured by the property all parties other than the primary lender must agree to release their lien. This will need to be done by negotiating with the first lien holder.

Q: What if a homeowner sells or refinances the home after refinancing through HOPE for Homeowners?

A: If the home is sold or refinanced within one year, the homeowner must pay the FHA all of the profit. This profit would be the difference between the value of the property as set by the FHA appraisal and the sale price of the property. The borrower gets to gradually keep a larger share of the profits until, after five years, the borrower’s share is capped at 50 percent.

It is important to note that there is no end date for this provision. If you pay for an additional 20 years, then sell your home, 50% of the profit (again, the difference between the FHA appraised value at the time of the Hope for Homeowner’s refinance and the sale price of the property) will go to FHA.

You will be prohibited from taking out a second loan on the property for a period of five years after refinancing.

Q: Are there other provisions in the Act?

A: The Act contains benefits for first time homebuyers, active duty military and older homeowners.

First time homebuyers–First-time buyers of a primary residence are eligible for a federal tax credit of 10 percent of the purchase price, up to $7,500. This is essentially an interest free loan to be repaid over 15 years. In order to qualify you must purchase your home between April 9, 2008 and July 9, 2009. If your income is over $75,000 (or $150,000 for a married couple) there are significant restrictions on this provision.

Homeowners 62 and up–The HOPE for Homeowners Act imposes restrictions on reverse mortgages. Origination fees are now limited to 2% on any loan up to $200,000 and 1% on loans above that, up to a limit of $6,000. Additionally, lenders are now prohibited from requiring borrowers from purchasing annuities or other similar produces as a condition of qualifying for the reverse mortgage.

Military Members—Prior to the HOPE for Homeowners Act, lenders could not commence foreclosure or trustee sale proceedings for 90 days after a service person returns from active duty. Until the end of 2010 that period is now extended to 9 months. It also prohibits lenders from increasing mortgage interest rates for one year after retuning from active duty.

Q: How do I apply?

A: The Federal Housing Administration is administering the HOPE for Homeowners Program. If you are interested in applying you should contact your lender or another FHA approved lenders. Only FHA approved lenders qualify to help you apply for these loans. A list of these lenders is available on the FHA website.

Note-this information is offered as a general overview of the new HOPE for Homeowners Act only, it is not intended and should not be considered legal advice. You should not depend on this general advice, as your particular situation may not be covered here. The Hope for Homeowner’s Act is complex legislation. In order to determine if it will assist you in your particular situation you must meet with an attorney or a licensed mortgage broker approved by the FHA