HOPE for Homeowners
Friday, August 8th, 2008Title VI of the legislation is the Hope for Homeowner Act of 2008 and is a voluntary program between exisiting loan holders and home owners. It is designed to “insure refinanced loans for distressed borrowers and to support long-term sustainable homeownership”. It is established under the Federal Housing Administration (FHA). HOPE is an acronymn for Home Ownership Preservation Equity.
By reducing the principle (sic) balance and reducing the interest rate on the mortgage, the goal of HOPE is to help home owners avoid foreclosure and stabilize the mortgage markets by bringing transparency to the value of assets, based upon mortgage costs.
The timeframe for HOPE is October 1, 2008 through September 30, 2011. FHA has a commitment to insure any eligible mortgage that has been refinanced. Homeowners must show a lack of capacity to pay their existing mortgage and have only one residence which is their principal residence.
The debt to income ratio of the home owner must be 31% or more. (To calculate, take the gross income and multiply by 31%, then divide by 12 to derive the monthly mortgage payment. For instance, a homeowner earning $60,000 annually would have a minimum of $18,600 in annual mortgage payments or $1550 a month.) This does not include taxes and insurance which are often included in the mortgage payment.
To qualify, the homeowner must demonstrate a reasonable ability to to make payments on the new mortgage which cannot exceed 90% of the appraised value of the property. This would be an appraisal today, not the appraisal upon which the original mortgage was based, done by a certfied appraiser.
Any second lien holder (second mortgage holder) must agree to extinguish any liens by reaching an agreement with primary mortgage holder. Funds come from the new mortgage insured by FHA. However, those funds may not be enough to cover both loans so agreement must be reached. Only one mortgage will be insured by FHA. However, the second lien holder may share in any future price appreciation of the property.
New mortgages cannot exceed 132% of the FHA limit. Loans must be single rate fixed and at least 30 year mortgages. No adjustable rate mortgages are acceptable under the program. Homeowners utilizing this program may take no second mortgage for five years.
Lenders must verify the income of persons applying for HOPE with the tax returns for the most recent two years. Penalities including jail of no more than five years and/or fines are prescribed for any type of mortgage fraud for any person who has an interest in the real estate transaction. This includes the mortgage broker, banker, real estate broker, appraisal management company, appraiser, or any employee who tries to influence the appraisal or otherwise commit mortgage fraud.
The insurance premium of 3% of the original insured principal obligation will be paid to FHA and an annual premium of 1.5% of the insured principal balance. There is a five year phase in for equity in the home to be shared with the mortgagor and FHA. Within one year of sale or refinancing after obtaining such a loan, the homeowner will owe 100% of the equity,; between 1-2 years, 90%; 2-3 years, 80%, 3-4 years, 70%,4-5 years 60%, and five years or after 50%.
The Home Ownership Preservation Entity Fund will be used to carry out mortgage insurance obligations. The Government National Mortgage Association (GNMA or Ginnie Mae) is authorized to issue HOPE bonds to fund this program. No more than $300,000,000,000 in bonds may be isssued to fund this program.
Next: SAFE Mortgage Licensing Act, Foreclosure Prevention, FHA Modernization Act of 2008
Resources: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:h3221eas2.pdf
