My friend Paul Dunn, a superior, knowlegable and informed loan originator in Phoenix, has a blog post that explains the new FHA HOPE. I have also received various different explanations. One of the most recent is from the National Association of Realtors. It says:
FHA foreclosure rescue - development of a refinance program for homebuyers with problematic subprime loans. Lenders would write down qualified mortgages to 85% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of appraised value. Borrowers would have to share 50% of all future appreciation with FHA. The loan limit for this program is $550,440 nationwide. Program is effective on October 1, 2008.
Now Paul, who has researched this very closely has some additional information about how it works. To quote Paul:
Here are some things that I've found in Title IV (FHA HOPE For Homeowners) so far:
The whole thing makes about as much sense as how Superman can stop bullets with his chest but if you throw a revolver at him he ducks out of the way.
It is entirely voluntary to enter into by the borrower.
To be eligible, the borrower cannot have made any "false statements" on the loan they are trying to replace, the old loan. So this WILL eliminate anybody who did Stated Income loans for the original loan.
If a borrower can qualify the old lender will need to write off enough of their loan to get the new FHA Hope loan to 90% LTV maximum.
The old lender will have to pay a 3% upfront Mortgage Insurance Premium on the new loan.
HUD will then say "since we're helping you out like this, we want a piece of your equity down the road". You will pledge your equity to HUD in this format whether you sell or refi the loan:
0-12 months - HUD gets 100% of the equity (remember the equity started at 10%)
13-24 months - HUD gets 90%
25-36 months - HUD gets 80%
37-48 months - HUD gets 70%
49-60 months - HUD gets 60%
From there on out - HUD gets 50%
You cannot get an equity line for 5 years and then it would cap out at 100%.
I especially like the voluntary part because it is totally voluntary for the lender to participate too. How many of them do you think will be waiving 15% of the loan amount and then pay a 3% fee to do it? I don't think it will be a majority. Also, "false statements" could be a real tricky point with a lot of people.
Overall, I am not sure this will be the huge lifeline people are expecting. I even saw one comment that the people waiting to be rescued expected to get a 3% interest rate out of it. Dream on!
Fred - Thanks again for introducing me to Paul. I'm bound to learn a lot from him. I gotta agree, doesn't sound like this will be the knight in shining armor.
Travis - I truely hope that this program brings relief to "a ton" of folks, but my honest opinion is that it is just another feel good propostion by our out of touch Washington bureaucrats. I pray I am wrong.
Fred, I have seen a few new programs that are hitting the board and I like what I see so far. With that said, I still think that we will be in a world of hurt when the DPA goes away.
Danny - I agree that DPAs served a useful purpose, but in reality, it was exactly what it was accused of being, the seller giving the down payment ot the buyer. As for the FHA Secure, it is a good product, but I haven't heard many people actually getting approvals out of them. The Hope, well ?????.
Michael - I am just not sure what to expect from the legislation. I never expect the best outcome from any legislation, someone almost always has their finger in it somewhere.
Marcene, it really doesn't matter about 2nd, third, fourth or whatever, the maximum LTV is the maximum LTV and there is not CLTV. Subordinate liens would have to agree to go away also.
You are exactly right the Hope for Home Owners requires that all existing liens are paid in full. And I think you are exactly right that there is a good possibility that this will not spell relief to a ton of people.
I will say however that have called me already are fairly well informed. They have understood the write down and that it starts October 1.
One person called, saying they owed $170,000 and expected the value to be $140,000.
I just asked myself, why did you borrow $170,000 on this house. How could an appraisal be that inflated. In Chattanooga, we have not had that kind of depreciation. Prices have held.
For this loan to work, with these numbers, the lenders would need to agree to write off $50,000 or almost 30% of the debt.
Of course, I think the write downs need to be more than 15% below appraised value. The estimates for closing costs to be included in the 90% loan seem low.
I agree Richard. I just can't see the lenders reducing the payoff by that much. There is no way they can't make more by foreclosing, is there? As I said, I hope I am wrong, but don't see it happening.
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Fred - Thanks again for introducing me to Paul. I'm bound to learn a lot from him. I gotta agree, doesn't sound like this will be the knight in shining armor.