The HOPE for Homeowners (H4H) loan modification program was changed last week by HUD. HOPEfully, these changes will invigorate the program with the jumpstart that it needs to make it more viable. Possibly it will become the way to help more distressed borrowers refinance into affordable, government-back mortgages that it was designed to do. Foreclosure avoidance is possible.
At the risk of gathering the ire of Jeff, the Mortgage Man, again, I didn't think the program would work the way it was written and it hasn't. HUD is already making changes to the program because they had only received 111 application nationwide according to a recent blog by CNBC's Diana Olick.
The changes are supposed to reduce the program costs for consumers and lenders alike while also expanding eligibility by driving down the borrower's monthly mortgage payments.
Modifications to HOPE for Homeowners include:
- Increasing the loan to value ratio (LTV) to 96.5 percent for some H4H loans;
- Simplifying the process to remove subordinate liens by permitting upfront payments to lien holders; and
- Allowing lenders to extend mortgage terms from 30 to 40 years.
"These changes will further encourage lenders to take a hard look at this program before heading down the path to foreclosure and will provide families with another resource to refinance into a loan they can afford," said FHA Commissioner Brian D. Montgomery. "HOPE for Homeowners will continue to serve as another loss mitigation tool that can be used to help families keep their homes."
HOPE for Homeowners will only be available as government-insured fixed rate mortgages, based on a family's long-term ability to repay the mortgage. Only owner-occupants are eligible for FHA-insured mortgages.
As I stated in my previous blog, the H4H program left a lot to be desired in getting the current mortgage holder to want to participate. It was fairly apparent that the mortgage holder would make out nearly as well if not better by going through with the foreclosure. This change should help in that perception. Jeff and I clearly disagreed as to what subordinate lien meant in the original wording. I think this change makes that pretty clear. "Clearly, meaningful changes were needed. These modifications should increase lender participation and help more families who are having difficulty paying their existing mortgages, but can afford a new affordable loan insured by HUD's Federal Housing Administration," said U.S. Housing and Urban Development Secretary Steve Preston.
The program will increase the loan-to-value ratio (LTV) on H4H loans to 96.5 percent for borrowers whose mortgage payments represent no more than 31 percent of their monthly gross income and household debt no more than 43 percent. This change will expand the number of eligible borrowers. Raising the loan-to-value ratio reduces the gap between the existing loan balances and the new H4H loan and decrease losses to the existing primary lien holders. Alternatively, the program will continue to offer borrowers with higher debt loads a 90 percent loan-to-value ratio on their H4H loans. This LTV ratio will include borrowers with debt-to-income ratios as high as 38 and 50 percent. In conjunction with the LTV change, H4H will eliminate the trial modification that was previously required. This measure was too complicated and required delicate (to say the absolute least) negotiations among the existing lien holders, the new H4H lender, and the borrower.
H4H will offer subordinate lien holders (I continue to read this as 2nd and 3rd lien holders, not the 1st lien holder) an immediate payment in exchange for releasing their liens, to permit more borrowers access to the program. Previously, subordinate lien holders who released their liens were only eligible to receive a small recovery payment when the home owned by the H4H borrower was sold. Given the amount of time that would pass between the creation of the H4H and the ultimate sale of the home, as well as the tremendous market uncertainties, subordinate lien holders were not guaranteed any return at all. To address this problem, the subordinate lien holders may now receive an immediate payment at the time the H4H loan is originated.
To assure that borrowers are put into the most affordable monthly payment possible, HOPE for Homeowners will permit lenders to extend the mortgage term from 30 to 40 years. For borrowers with very high mortgage and household debt loads, extending out the amortization period may reduce their monthly payments enough to make it possible for them to qualify for this rescue product and save their homes.
Consistent with statutory and regulatory requirements, borrowers must continue to meet the following criteria:
· Their mortgage must have originated on or before January 1, 2008.
· They cannot afford their current loan.
· They must have made a minimum of six full payments on their existing first mortgage and did not intentionally miss mortgage payments.
· The loan amount may not exceed a maximum of $550,440.
· The Upfront Mortgage Insurance Premium is 3 percent and the Annual Mortgage Insurance Premium is 1.5 percent.
· The holders of existing mortgage liens must waive all prepayment penalties and late payment fees.
· They do not own a second home.
· They did not knowingly or willfully provide false information to obtain the existing mortgage, and they have not been convicted of fraud in the last 10 years.
· They must follow FHA's long-standing and strict policy of fully documented income and employment.
In my original blog post on Oct. 16, we had a heck of a discussion. On Nov. 1, one response was from a participating lenderthat said they were attending training on Nov. 13 & 14. No post as to the results of that training yet. I have no doubt they are buried in work from that meeting....but inquiring minds want to know. lol
Here is a quote from Mark MacKenzie in Phoenix that I thinks sums up another problem with the program: ".... this proposal assumes that the borrower could even afford a new FHA 30-year fixed rate mortgage as opposed to the teaser rate that they originally purchased the property with. There is a reason why they didn't use this type of financing in the first place, they couldn't afford it."
I searched the blogs on Active Rain and haven't seen anything recent that has addressed my original issues about lenders, rates and whether or not the program was viable. I would still like to know what the rate on this is supposed to be. With the increased mortgage insurance premium, even with the lower loan amount, the rate is crucial to affordability. The FHASecure has a significantly higher rate, won't the H4H have the same type of rate? Higher? Lower? The Same? I have posted blogs recently about the modification programs started by Fannie Mae, Freddie Mac, CitiBank, JP Morgan Chase and IndyMac (FDIC). I think those programs have more chance of succeeding than the H4H. So, I guess, I will wait and see.
I still have a lot of difficulty with the program. No national lender, so far, to my knowledge has rolled out the program to their brokers and investment partners. I have heard rumors of this happening soon. So far, I have no lender partner to sell this loan to or to even price the loan. I know there are lenders taking H4H applications now, but I won't until I know where and how to place the loan. The big statement on the HUD site is that you must have agreement from your current lender before you can do this loan. It is a voluntary program and the current lender is not being forced to participate. I hope this adjustment helps make the program work up to its name, "Hope for Homeowners," but I will continue to withhold judgment.
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