Changes will allow more struggling families to use the program and keep their homes
RISMEDIA, November 21, 2008-U.S. Housing and Urban Development Secretary Steve Preston has announced that the HOPE for Homeowners (H4H) Board of Directors has approved changes to the program to help more distressed borrowers refinance into affordable, government-back mortgages. The changes will reduce the program costs for consumers and lenders alike while also expanding eligibility by driving down the borrower’s monthly mortgage payments.
“Clearly, meaningful changes were needed. These modifications should increase lender participation and help more families who are having difficulty paying their existing mortgages, but can afford a new affordable loan insured by HUD’s Federal Housing Administration,” said Preston.
By taking full advantage of the new authority provided under the Emergency Economic Stabilization Act (EESA) of 2008, HOPE for Homeowners will provide additional mortgage assistance to struggling homeowners.
Modifications to HOPE for Homeowners include:
- Increasing the loan to value ratio (LTV) to 96.5 percent for some H4H loans;
- Simplifying the process to remove subordinate liens by permitting upfront payments to lienholders; and
- Allowing lenders to extend mortgage terms from 30 to 40 years.
“These changes will further encourage lenders to take a hard look at this program before heading down the path to foreclosure and will provide families with another resource to refinance into a loan they can afford,” said FHA Commissioner Brian D. Montgomery. “HOPE for Homeowners will continue to serve as another loss mitigation tool that can be used to help families keep their homes.”
HOPE for Homeowners will continue to only offer affordable, government-insured fixed rate mortgages. Further, this program will maintain FHA’s long-standing requirement that new loans be based on a family’s long-term ability to repay the mortgage. Only owner-occupants are eligible for FHA-insured mortgages.
Increasing the Loan-to-Value and Adjusting Debt-to-Income Ratios
The program will increase the loan-to-value ratio (LTV) on H4H loans to 96.5 percent for borrowers whose mortgage payments represent no more than 31 percent of their monthly gross income and household debt no more than 43 percent. This change will expand the number of eligible borrowers. Raising the loan-to-value ratio reduces the gap between the existing loan balances and the new H4H loan and decrease losses to the existing primary lienholders. Alternatively, the program will continue to offer borrowers with higher debt loads a 90 percent loan-to-value ratio on their H4H loans. This LTV ratio will include borrowers with debt-to-income ratios as high as 38 and 50 percent. In conjunction with the LTV change, H4H will eliminate the trial modification that was previously required. This measure was too complicated and required delicate negotiations among the existing lienholders, the new H4H lender, and the borrower.
Immediate Payments to Subordinate Lienholders
H4H will offer subordinate lienholders an immediate payment in exchange for releasing their liens, to permit more borrowers access to the program. Previously, subordinate lienholders who released their liens were only eligible to receive a small recovery payment when the home owned by the H4H borrower was sold. Given the amount of time that would pass between the creation of the H4H and the ultimate sale of the home, as well as the tremendous market uncertainties, subordinate lienholders were not guaranteed any return at all. To address this problem, the subordinate lienholders may now receive an immediate payment at the time the H4H loan is originated.
Extending Loan Terms from 30 to 40 years
To assure that borrowers are put into the most affordable monthly payment possible, HOPE for Homeowners will permit lenders to extend the mortgage term from 30 to 40 years. For borrowers with very high mortgage and household debt loads, extending out the amortization period may reduce their monthly payments enough to make it possible for them to qualify for this rescue product and save their homes.
Consistent with statutory and regulatory requirements, borrowers must continue to meet the following criteria:
- Their mortgage must have originated on or before January 1, 2008.
- They cannot afford their current loan.
- They must have made a minimum of six full payments on their existing first mortgage and did not intentionally miss mortgage payments.
- The loan amount may not exceed a maximum of $550,440.
- The Upfront Mortgage Insurance Premium is 3 percent and the Annual Mortgage Insurance Premium is 1.5 percent.
- The holders of existing mortgage liens must waive all prepayment penalties and late payment fees.
- They do not own a second home.
- They did not knowingly or willfully provide false information to obtain the existing mortgage, and they have not been convicted of fraud in the last 10 years.
- They must follow FHA’s long-standing and strict policy of fully documented income and employment.
The HOPE for Homeowners program was authorized by the Housing and Economic Recovery Act of 2008. A Board of Directors was charged with establishing underwriting standards to ensure borrowers, after any write-down in principal, have a reasonable ability to repay their new FHA-insured mortgage. The program began October 1, 2008, and will end September 30, 2011.
The HOPE for Homeowners Board of Directors includes HUD Secretary Steve Preston, Treasury Secretary Henry Paulson, Federal Reserve Board Chairman Ben Bernanke, and FDIC Chairman Sheila Bair. They have named the following people to serve on the board as their designees: FHA Commissioner and Chairman of the Board Brian Montgomery, Federal Reserve Board Governor Elizabeth Duke, Treasury Assistant Secretary for Economic Policy Phillip Swagel, and Federal Deposit Insurance Corporation Director Tom Curry.
Read more about HOPE for Homeowners at www.hud.gov.
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