Starting October 1, 2008 (that would be tomorrow if you are a timely subscriber) a major portion of HR3221 and other changes to FHA and other types of lender will go into effect. Now remember, FHA does not actually buy loans as do the GSEs Fannie Mae and Freddie Mac. In fact we have been taught that the FHA is the only government corporation that runs in the black using only funds generated by its own business. In other words it is not funded by tax payer dollars. We haven't heard a lot said about the liquidity, or illiquidity, of FHA during the last several weeks. But I digress.
We just finished a several month period where the FHASecure Refinance was supposed to have been king. FHA, in fact, claims hundreds of thousands of refinances using the FHA Secure yet I have read or heard testimony from not one person whom I know personally who closed one. Again, I digress.
The change on October 1 is the end of FHASecure and the inception of Hope For Homeowners. While I sit here waiting for a clear to close on my final seller funded (Nehemiah) down payment assisted FHA purchase I am answering emails in bunches from readers wanting to have more information about this new Hope For Homeowners. I am not going to pretend to have all the answers nor to presume the answers I have are what is actually going to occur - for many reasons, most of which I do not even yet know. Instead of treating this as an absolute like I did the FHA Secure I will operate under what we have been told and how we have been trained until I gain some actual experience.
What is Hope For Homeowners?
According to the official information Hope For Homeowners "will continue FHA's existing and successful efforts to provide aid to struggling families trapped in mortgages they currently cannot afford. Under the program, certain borrowers facing difficulty with their mortgage will be eligible to refinance into FHA-insured mortgages they can afford". Of course this is also what FHA Secure claimed to "allow families with strong credit histories who had been making timely mortgage payments before their loans reset-but are now in default-to qualify for refinancing".
While it all sounded good finding an investor to actually purchase the paper was a joke and getting FHA to offer any assistance there a waste of time. Some claimed to do hundreds or dozens and others just laughed. I heard Jim Beavers, one of the architects of the death of seller funded down payment assistance, whining because wholesale lenders and mortgage investors hadn't gotten behind the program. Then he issued sort of a "threat" and said, "If you didn't like FHASecure you're gonna hate Hope For Homeowners".
Well, Jim, they didn't. So it remains to be seen why anyone would want to participate in Hope. I mean from what I understand the value of the property is marked to market and any encumbrance above 90% of market value is expired. Our example for the remainder of this rather lengthy article will use an example of a borrower who owns a property which is currently valued at $185,000 but has a first mortgage of $190,000 and a second mortgage of $30,000 actively liened against it. Write that down somewhere if you need to as we move to answer our next questions.
For Whom is Hope For Homeowners?
Now that you have a basic concept of what Hope is, along with a few dozen questions you did not have prior to reading the first few paragraphs, we can examine that same bit of information provided by HUD, "will continue FHA's existing and successful efforts to provide aid to struggling families trapped in mortgages they currently cannot afford. Under the program, certain borrowers facing difficulty with their mortgage will be eligible to refinance into FHA-insured mortgages they can afford". We will simply take that statement apart and see who we can identify.
"Struggling families" is the first that is mentioned. I already know you do not have to be a family but you do need to be an American citizen or legal resident.
"Trapped in mortgages they currently cannot afford" could be ambiguous but you know there are guidelines. Without getting technical let's hit a couple of bullet points from HUD:
* Their mortgage must have originated on or before January 1, 2008; * Their mortgage debt-to-income must be at least 31 percent; * They cannot afford their current loan; * They did not intentionally miss mortgage payments; and * They do not own second homes.
When FHASecure first came out HUD wanted the homeowner to have missed a mortgage payment, or more than one, but only after the adjustable rate had increased and they could not have been late on any other payments. Hope has some differences but one similarity is that the borrower must be qualified for the loan with the exception of mortgage troubles. In other words bad credit borrowers because they have a slow payment history will not qualify.
Requiring the MORTGAGE DTI to be above 30% just goes inline with capping MDTI (lower ratio) in the same range as qualifying for an FHA loan to begin with except in this case having an MDTI higher than the normal requirement would be a key indicator that the mortgage is to heavy of a debt load for the homeowner and a signal they really need help.
To answer "for whom" it would be simple to say anyone who could qualify for an FHA insured home loan if their HDTI was less than 31% but who are in a mortgage that breaks the ceiling for their debt load. (If any of this is difficult to understand, confusing or you just have questions you can email me - I'm up most of the night - or phone me at 678-946-0100 during normal business hours EST).
How Can You Take Advantage of Hope For Home Owners?
Do a search for an APPROVED FHA Lender who is local to your area or region. Yes, there are unapproved loan officers making FHA loans and by using one you will almost certainly over pay for their services, you will not have the protection of the Federal Government should they hoodwink you, and they do not have direct access to all of the tools and information companies like my Novation Mortgage in Atlanta, Georgia. Check your state and if we are licensed and approved there I will be more than happy to work for you.
Although there are dozens of national advertisers, email spammers, flashing spinning website buzzy buttons, and even telemarketing calls, I strongly urge you to work with a local lender or broker from your area. Chances are the pricing between Ditech and Corner Mortgage will be equal or slightly different one direction or the other. As an example we normally beat Ditech, Wells Fargo and Countrywide with our overall closing costs and rates. If you do not know how to shop for a mortgage send me an email and I will send you a PDF flier that alerts you to tricks used by everyone but most "the big guys" to get you to participate with them.
Final Word
Don't wait around and see how it goes. This program is scheduled to run into 2011 but with the economy like it is who knows what changes could happen earlier.
THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.
EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.
7 Comments on Hope For Homeowners - What, Who & How
SEP
30
2008
Ken....good post!! Clarifies somewhat some of the details of the rescue plan but not easy to digest for the average home borrower. 90% of the clients that I know that are behind on their mortgage do not qualify based on the guidelines!!!
It's obviously a well-intended program but the qualifying criteria can bounce a lot of people right out of it. For instance, borrowers who have other credit blemishes are out and that could affect many candidates.
Sergio - No argument from me. I'm just going to put it out there and see what happens. I already have a few people interested in going for it - we shall see and I will report. Thank you for stopping in!
Esko - ditto. We'll see how it shakes out. Very difficult to get excited about it when I had first hand experience at the flatness of Secure. Thanks for commenting.
Ken.... to address Esko.... well-intended? In my opinion, not really. Just like the FHA secure... as noted, you still needed to qualify. When FHA secure first came out, you coudn't be late until after the adjustment.... they modified that 6 months later... allowing you to be late prior to the adjustment. But one key point... you had to qualify for the loan still.... in most cases, the same quidelines.
Ken... in regards to the Hope program... I had a client 3 weeks ago yell at me, telling me that she fit the program. It was posted on HUD's web site... I told her good luck... that I would briefly look into it, but just as everyone else in la la land.... there was some slightly misleading info on their site. They talked about a flat loan amount in the 500's.... but no where in small print did it say that you still had to follow maximum limits. I told her that was probably a ceiling for the program.... but not for each county... well, from what I found out, I was right....
You talked about 90% LTV.... but you didn't get into what happens with the rest. I don't know the answer 100%, but doesn't the current lien holder have to modify or subordinate the rest of that first, to fit under the 90%? In many cases, forgive or restructure the loan??? If you answer yes, doesn't that answer the basic concept of this program? In my opinion, this is just a feel good loan for consumsers to have "hope", no pun intended....
Jeff - you are exactly correct as far as I see it. Obviously this is just a ploy on my part to waste a lot of time talking to people who probably don't qualify for another piece of ... well, I digress. I don't see many people qualifying for these but it's a hot search topic right now. In my post I "expired" anything above 90% marked to market LTV as in the phrase "any encumbrance above 90% of market value is expired". We'll talk about this one more I'm sure. Thanks Jeff!
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Ken....good post!! Clarifies somewhat some of the details of the rescue plan but not easy to digest for the average home borrower. 90% of the clients that I know that are behind on their mortgage do not qualify based on the guidelines!!!