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FHA Hope for Homeowners Program, Is It Real?
More and more people are contacting us asking about the newly-announced FHA Hope for Homeowners program and how to qualify, what will work and won’t work with the guidelines, etc.
The good news is that FHA has issued a few press releases about the program and we have some high-level guidelines to look at as we begin to work with people to help them get qualified.
The bad news is that many lenders and investors have not yet put their guidelines in place and so we caught in this cycle of “maybe this will work” but not knowing for sure and often times many lenders are not sure what they can and can’t do.
As a result, we have yet to *complete* an FHA Hope for Homeowners loan — although we have a few at various stages of the origination process.
Is the FHA Hope for Homeowners program real?
Yes, we think so.
Is Hope for Homeowners the right program for you?
Maybe, maybe not.
Many of the people we talk to may be able to realize more benefit from a short-refinance than they would benefit from a Hope for Homeowners loan and so we are working with lenders to do a short refinance when possible.
How does a short-refinance work?
Think short-sale except for rather than sell your home to someone else for less than you currently owe, you just refinance it and your current bank excepts less than you currently owe.
Short refinance, Hope for Homeowners, loan modification, short sales.
In today’s mortgage world, those are the three most common things that we seem to be talking with people about.
Which one is right for you?
It depends on things like whether you want to live in your home or just get rid of it. Or whether or not you are current on your house payment. Or who your current lender is. Or whether or not you currently could qualify for a new loan.
As always, we are available to share our experience and help you through the process.
FHA Hope for Homeowners Program Update
The FHA Hope for Homeowners Program starts today!
Good news, right?
Maybe.
It depends on whether or not your current lender is willing to participate and as we have mentioned before, many lenders are not excited about this program.
According to an article in the Realty Times:
At a House financial services hearing last Wednesday, a top Bank of America executive, Michael Gross, said Congress may have unrealistic assumptions about how many lenders and investors will agree to participate in Hope for Homeowners refinancings.
“My biggest concern,” said Gross, “is that expectations for (this) program might be too high.”
In the meantime, borrowers who believe they might benefit from a Hope refinancing, should start talking with their servicers to see whether there’s a chance. The law expressly makes the decision voluntary for all financial institutions — borrowers cannot compel them or take them to court to force their hands.
Do you think that you are a candidate for the FHA Hope for Homeowners Program?
The first step is to get on the phone with your current lender and find out if they are participating in the Hope for Homeowners Program before you start talking with anyone about refinancing your loan.
Need Cash From Your Home Equity Line Of Credit? Get It While You Can!
If you have a Home Equity Line of Credit (HELOC) that you have not used, now is a good time to evaluate whether or not you think you will *ever* need the cash.
If you think that you may need the cash in the future, it may be wise to withdraw it out and put it in another account.
Why?
Because banks are closing HELOCs with little or no prior warning leaving people with no line of credit where they thought they had it in place and could draw upon it.
I have heard more than one story about this happening with more than one large HELOC lender — and even got my hands on a letter from FDIC/Indymac who is paying people to close their HELOC account.
So if you think that you will need access to the cash from your HELOC it may be a good time to go get it!
The Housing and Economic Recovery Act of 2008 — Hope for Homeowners Program
Following up on my post yesterday about The Housing and Economic Recovery Act of 2008 and what it means for people… today I thought I would talk about the changes in the FHA programs where there is a $300 billion set aside to help homeowners refinance their troubled mortgages into an FHA insured mortgage. This program is also called the Hope for Homeowners Program and was written into the bill by Senate Banking Committee chairman Christopher Dodd (D-CT).
Dodd has been meeting with HUD officials to make sure that HUD will be ready for the program to begin October 1, and according to the Hartford Courant, everyone is confident that the program will be able to begin helping homeowners on (or possibly before) October 1, 2008. For their part, HUD is adding 300 more employees to help FHA handle the additional loan refinancing it expects from the Hope for Homeowners Program — which could be as many as 400,000 families according to estimates.
Who is Eligible?
In order to be eligible to refinance your unaffordable mortgage into an FHA-insured loan, you must meet the following criteria:
- The home must be your primary residence (no investment properties)
- You must have bought the home between January 2005 and June 2007
- You must be spending at least 31% of your gross monthly income on your mortgage payment
- It doesn’t matter if you are behind on your mortgage or not, you must prove that you will not be able to keep paying the existing mortgage without help and you will have to attest that you are not defaulting on purpose just to obtain lower payments
- You will have to retire any 2nd mortgages on the home or any other line of credit on the home — and you will not be able to take out another home equity loan for at least 5 years except for certain circumstances and even then, you will need approval from the FHA
How Does the Process Work?
You can contact any FHA approved lender for help with the application process (Hint, contact us or you can see a list of other FHA approved lenders here).
As part of the application process, you will get a new appraisal on your home to determine it’s current value.
The program is a voluntary program, so your current lender will have to agree to participate. It is currently somewhat unclear on exactly how this “participating lender approval process” will work (getting approval from your current lender), so look for more information about that coming later.
If participating, your current lender will write down the value of your current loan to 90% of your homes current value according to the appraisal. In Maricopa county, where prices have fallen by more than 20%, this will mean a substantial amount of money will be written off by the lender.
If the original lender agrees to the writedown, the new lender then underwrites the loan (don’t forget the eligibility criteria above that must be met), makes a new FHA-insured loan and “short pays” the payoff according to 90% of the appraised value.
Lastly, your old lender is required to pay FHA an up-front premium of 3% of the mortgage principal — which means that not only is your old lender going to have to write off a loss, but also pay FHA a fee to get you a new loan!
Are There Any “Strings Attached” For Homeowners?
Yes.
Your new FHA-insured loan will have the normal closing costs and Up-Front-Mortgage-Insurance (UFMIP) and you will also pay a 3% “exit fee” of the mortgage balance to FHA when you sell your home or refinance the loan.
You will also agree to share any profits from future appreciation with FHA. If you sell your home or refinance within 5 years, you will share the price appreciation with FHA accordingly:
Years 0-1 — 100% of the appreciation is paid to FHA
Years 1-2 — 90% of the appreciation is paid to FHA
Years 2-3 — 80% of the appreciation is paid to FHA
Years 3-4 — 70% of the appreciation is paid to FHA
Years 4-5 — 60% of the appreciation is paid to FHA
Years 5+ — 50% of the appreciation is paid to FHA
Is It Worth It?
It depends.
Each situation is different, so it is important to talk to a mortgage professional and understand what you are committing to. The main factors to consider are:
The terms of your current loan (if you are in an Option ARM, this may help you more than if you are in a 30 year fixed rate loan already)
The current value of your loan vs. how much you currently owe
How long you plan on being in your home
My guess is that for many people in Maricopa county who have seen the seen the value of their home go down by 20% (or more) and are currently in an adjustable rate, it will make sense.
But be sure to do your homework first!
Lender Conditions 2008 vs Lender Conditions 2006 — Income Related Conditions
Over the last 5 or 6 years, approximately 70-80% of all of the files (a few thousand if my math is right) we have worked on were FHA files so we have developed a pretty serious competency around the ins and outs of FHA. We were doing FHA before FHA was cool!
When I was compiling the list of income-related conditions for this post, I noticed that the conditions that we see over and over again may not apply to the borrowers who make $150,000 per year and trying to purchase a $750,000 home – so as you review these, just remember that these are the main income-related conditions that we see in 2008 that we didn’t see in 2006 within our target market.
In 2008…
Lenders are requiring completed form 4506T (the document that allows UW to verify the social security numbers of the borrowers and confirm with the tax information about the borrower directly from the IRS). They still require a 4506T on each file and confirm income with the IRS regardless if you provided the borrowers copy of their W2’s and/or tax returns.
In 2006…
They used to take the borrowers W2’s or the borrowers copy of their tax returns.
In 2008…
You can no longer do an average of the previous year’s income and the YTD of this year with no further documentation. For example, if your borrower made 50k in 2007 and has made 60k through the first 6 months of 2008, you cannot just get a W2 for 2007 and the most recent pay stub for 2008 and come up with $55,000 in income.
The lender will most likely require that you get a full written VOE (Verification of Employment) from the employer and have it break down the income. It is amazing how many times an HR department can’t calculate/break down how much someone made – and it all adds up to quite a bit of time that a processor must spend on a file that they didn’t have to in 2006.
In 2006…
You could just average the previous year’s income with the YTD of this year as proven by W2’s and current pay stubs.
In 2008…
If your borrower has Social Security income or Disability income, you must get a 1099 from the IRS (borrower cannot provide it) and get the borrower to give you 3 months worth of bank statements showing 3 deposits to prove they are getting Social Security income.
In 2006…
You could just get an awards letter and a 1099 provided by the borrower.
In 2008…
It is very common for an UW to ask for “the most recent paystubs” – as in if your borrower got paid yesterday, get those.
In 2006…
You could provide income documentation where the borrower was proving W2 income with paystubs that were within the last 30 days.
These are some of the most common income-related conditions that we are seeing in 2008 vs. 2006. Did we miss anything? I am sure we did — Lenders, be sure to leave your comments as to what you are seeing out there!
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Arizona Mortgage Newsletter
