Hope for Homeowners

If you’re having trouble paying your mortgage, there’s hope for you. A three-year program known as Hope for Homeowners (H4H) is designed to help those who are at a high risk of foreclosure by refinancing their home loans so they can afford to pay them for the long term. You may be one of up to 400,000 homeowners who can avoid losing their homes by having your mortgage adjusted at a new 30-year, fixed-rate plan through H4H.

The program runs from October 1, 2008 until September 30, 2011.

About the Program

Troubled homeowners may participate in the Hope for Homeowners program, through one of four outlets:

1. They can contact their current lender and/or a new lender to determine their eligibility for the program.
2. They may have their servicer propose that they refinance their loan through H4H to avoid foreclosure.
3. The original lender can propose H4H to refinance an unaffordable loan, and may also work together with a servicer to aid homeowners.
4. Their counselors may arrive at the H4H program as a solution for lenders and homeowners to agree to as a means of avoiding foreclosure.

The servicing lender on the existing mortgage will likely provide the homeowner with the primary means of taking part in the program. If the servicer lacks an underwriting component to their mortgage operations, they can team up with an FHA-approved lender with underwriting capabilities.

There are four steps to participating in the program.

Step 1: Cost-Benefit Analysis

First, the lender must do a cost-benefit analysis to determine if the program is appropriate for the homeowner.

The lender would be responsible for making up the difference between the existing obligations and the new loan, which would be 90% of the home’s current appraised value. In lieu of taking on these losses, the lender can also use a loan modification to give homeowners more affordable monthly payments.

Once the lender determines that HOPE for Homeowners is the right option for the homeowner to prevent foreclosure, the lender will assess whether the homeowner meets the eligibility requirements to participate.

To be eligible for H4H:

• the existing mortgage must be dated on or before January 1, 2008
• the existing payments on the mortgage must be greater than 31% of the homeowner’s gross monthly income
• the homeowner cannot have a conviction of fraud in the last ten years under federal and state law
• the homeowner must not have defaulted intentionally, nor hold an ownership interest in another residential property
• the homeowner must not have misstated or lied about his or her income in order to receive the current mortgage.

The lender is also responsible for informing the homeowner of the program’s benefits and costs. The primary benefit is that borrowers can keep their homes by obtaining a refinanced mortgage that is based on the home’s current appraised value, with 10% equity.

The costs associated with the program are: a 3% mortgage insurance premium up front and a 1.5% premium annually; a prohibition on any new junior liens against the property (unless they have to do with maintenance); and the role of the federal government in sharing equity and appreciation.

Step 2: Negotiations Between Lien Holders and Borrowers

In certain cases, the lender who is refinancing the loan may not be the holder of the senior mortgage lien. If so, the lender must contact the existing lien holder to secure a waiver that covers all prepayment penalties and default fees on the loan. Furthermore, the lien holder must accept, as payment in full, the funds stemming from the new H4H loan. (As previously stated, the new loan amount, including 3% UFMIP, can be no higher than 90% of the home’s current appraised value.)

As a result, all subordinate lien holders will release their liens on the property. The FHA will share its future appreciation entitlement with these holders as part of the deal.

Step 3: Originating the H4H Mortgage

The lender will ensure that the homeowner is capable of making timely payments on the H4H mortgage. During the underwriting process, the lender will determine the amount of future appreciation interest for all subordinate lien holders, who will be given certificates showing that HUD will guarantee their interest payments (determined by HUD’s appreciation share).

When the loan is funded, the lender will record the security instrument, first mortgage note, a shared equity note and mortgage (SEM) and a shared appreciation note and mortgage (SAM). The FHA will service the SEM and SAM mortgages.

The new mortgage will then be sent to the FHA for certifying that it has met the H4H program guidelines for originating, underwriting and closing loans.

Step 4: Fulfillment of H4H Obligations

When they have sold their homes, homeowners must use the proceeds from the sale to pay off their H4H mortgages, in addition to the SEM and SAM mortgages.

Settlement agents will receive directions from the FHA on how to provide subordinate lien holders with their shares of appreciation. They will receive payment to the full dollar amount of interest, starting with the lien holder who held the highest priority on the property and continuing until all of them have received payments or the amount of available appreciation runs out. The FHA will assume ownership of any remaining appreciation.

Finally, if the homeowner never made the first payment on the H4H mortgage, the FHA may not pay claim benefits to the mortgage holder, pursuant to H4H statute.