Are you upside-down on your mortgage? In other words, do you owe more than what your home is currently worth? If so, there may be some new “hope” headed your way. On October 1st, a new program called FHA Hope for Homeowners was made available that will help those with negative equity cut their debt, lower their interest rates, and help rebuild equity.
However, there is one catch: Lenders and existing lien holders need to agree to take a loss on these loans by writing down the balances due. Why would they do this? Because in many cases, a short payoff is better than foreclosing on the loan.
Here’s what a few of the Mortgages Unzipped authors have to say about this program:
Andrew Adams, Salem Five
“This is all about grabbing headlines and not solving problems. It sounds great at first, but when push comes to shove, the number of folks that will benefit from it is minimal. For any game plan to work, you need the entire team to buy into it. I do not believe that the lenders are buying into this plan. Lenders are in rough shape, and agreeing to write down losses is not what they want to do; it’s what they are trying to avoid.”
Justin McHood, Arizona Mortgage Team
“The Hope For Homeowners program should emphasize the word hope, followed by an (*).
Why? Because if you are a borrower who would like to participate in the program, you can only hope that your lender will agree to a write-down of your original balance. But your lender is not required to by law and there is no official list of lenders who have agreed to participate in the program on a large scale.
The reality is that most lenders are trying to provide loan “workouts” on an individual, case-by-case basis rather than announce that they are willing to participate in the Hope for Homeowners program and write down the principal balance of the loan for borrowers in trouble.
So until something changes, if you are a borrower in trouble, you are probably far more likely to participate in a loan modification/loan workout with your current lender than you are to participate in the Hope for Homeowners program.”
Rob Cochems, C&M Mortgage Lending
“FHA Hope is a program designed to help people with less than perfect credit refinance out of their adjustable rate mortgages that they cannot afford. If you have an ARM that is about to adjust and this is your only option, try to stay on top of all your payments, as delinquencies on non-mortgage debt can disqualify you.”
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Comments
3 Comments so far
FHA Hope For Homeowners Explained | Mortgages Unzipped
[...] Miller compiled some comments from Mortgages Unzipped authors which demonstrates the difficulty of the program. Loan originators may be hesitant to work with you because of the low probability of a successful [...]
Robert Hall
Can you answer the below questions? Thanks.
Rather than ask separate questions, I’ll just state the facts and ask questions as I go along.
My only home (my primary residence) has been appraised at $610,000. I owe $650,000 on the first mortgage to lender A, $25,000 on a second mortgage to B, and $22,000 on a third mortgage to C. Assume, please, that I qualify in all respects for the FHA re-finance under the HOPE for Homeowners program (including all lien holders agreement to clear the liens).
90% of the $610,000 is $549,000, under the maximum loan amount FHA will guarantee. However, there is the 3% upfront Mortgage Insurance premium and the annual Mortgage Insurance premium of 1.5% to consider, right? Three percent of $549,000 is $16,470. That puts me over the $550,400 allowed, right? Am I disqualified? Is the 1.5% added to the total in the first year or not?
If I am not qualified based on the above scenario, please change the numbers so that I am - say the property appraised at $593,000. Ninety percent of $593k is $533,700. Three percent of $533,700 is $16,071, added together is $549,711 (under the $550,400 max). Does that then work (it’s assuming the 1.5% is not calculated until next year)?
If we assume it does work, six months later I sell the home for $625,000. Since it is within the first year, all the profit goes to the FHA. Correct?
If I wait to sell it for three years for $650,000, I have to split the profit with the FHA - I get 20%, the FHA gets 80%, correct (100-0 for year one, 90-10 for year two, and 80-20 for year three)? Assuming that’s correct, the profit would be (ignore closing costs and principal reduction for the example) $650,000 - $533,700 = $116,300. The FHA would get 80% of the $116,300 (or $93,040), leaving $23,260 on my side. How is the $23,260 divided between A, B, C, and me?
Thank you very much.
Robert Hall
P.Squires
The problem with this loan is that not one person or lending institution has agreed to carry these loans. If you have a loan with Wachovia, Country Wide, or Bank of America, then you can write your loan down. But if you have a loan with Aurora, Household Finance or any other institution, you do not qualify…as of today anyway. Out of 10 loan officers I spoke to today, no one knows what they are offering. No one can tell you what the program means exactly, or if they are going to have any other phone numbers that are more useful than the ones I have spent five days and 52 hours calling this week. The reality of this loan is that, as of today, it does not exist with any instition I talked to outside of the above mentioned companies, who of course were the first on the list of bail out banks with the 700 billion dollar bail out package that was approved.
If you have more information than I do, I will be happy to listen.