Hope for Homeowners Act of 2008 (Updated)

Hope for Homeowners Act of 2008

Questions & Answers

Q: What exactly will the legislation do?

A: This legislation was officially signed by President Bush and officially enacted on July 30, 2008. It will allow those who qualify to cancel their old mortgage loans and replace them with 30-year fixed-rate loans for up to 90 percent of the home's current fair market value. The FHA will insure a total of $300 billion of the loans over a three-year period.

BUT: the decision allowing a homeowner to re-write their current mortgage(s) solely remains up to their lender(s), which would have to be willing to voluntarily take a loss (for a short payoff) on the homeowner’s existing loan(s) in exchange for avoiding an often-costly foreclosure.

Q: Who is eligible?

A: Eligible borrowers must have spent more than 31 percent of their monthly incomes on their mortgages as of March 1, 2008. The troubled loan must have originated no later than Jan. 1, 2008, and be on the borrower's primary residence. And the borrower's income must be verified.

Q: When does the program start/end?

A: This took affect Oct. 1, 2008 and runs through September 30, 2011. FHA was suppose to have this program implemented and operating at full capacity at the start of 2009, however politics have once again obstructed the intent of this bill and have slowed FHA/HUD's implementation of this assistance.

Q: Since lenders can pick and choose which loans to refinance, how can consumers determine if theirs will be selected?

A: Check with the bank or financial company servicing your mortgage, but it may be weeks before they make decisions concerning the new guidelines and assess individual loans. But, even then, you should keep your expectations limited. Servicers are being very reluctant to take the government up on their offer. Less than 5% of defaulted mortgages have been successfully modified in any form. There has been a HUGE resistance by the mortgage lending industry to help homeowners in distress.

I highly encourage all homeowners facing such circumstances to consult with NACA and join their fight to persuade lenders do the right thing. Visit their website at www.NACA.com for more information.

Q: Is there anything a homeowner can do to improve chances of benefiting from the program, such as crunching numbers to make a case for the bank?

A: The best step is to keep up your payments as best you can.

Q: But doesn't this provide an incentive to NOT pay your mortgage, if you're barely keeping ahead of bills and are underwater on your house, so you can qualify?

A: No. If your situation deteriorates enough, the bank may reject any possible new loan possibilities. Turning yourself into a financial basket case in order to qualify for this new proposed relief is not going to work. A homeowner who turns themselves into a complete deadbeat will only force the lender or investor to just foreclose on the homeowner, cut their losses and move on.

Q: So what should I be doing now besides trying to keep up with payments?

A: If you truly and realistically feel you can keep your home and would be able to “realistically” pay on a modified mortgage plan on-time going forward, you should talk to your local HUD counseling agency or call the Hope Now alliance (which is an industry group that was established to respond to the mortgage crisis) at 1-888-995-HOPE. It is available 24 hours a day to provide mortgage counseling in multiple languages.

Q: What if banks and lenders refuse to re-write these loans?

A: Continued public and political pressure may prompt them to participate. If not, the current White House administration will try and subject them to additional regulations and/or investigations if they remain unwilling to take on the risks while more homeowners continue to fall victim to the foreclosure crisis.

Since less than 5% of all defaulted mortgages of been successfully modified since these assistance initiatives were put in place by President Bush, congress has introduced new legislation to force lenders/investors to modify defaulted mortgage loans. The newly introduced "Cramdown" legislation (a.k.a. Mortgage Modification Bill) is currently being debated and is expected to pass (in some form) within the next coming months. This legislation would give bankruptcy judges the unrestricted full capacity authority to modify or restructure a homeowner's mortgage(s) held on their principle primary residence.

Q: What happens if I'm able to sell my home after I refinance?

A: If you sell during the next five years, you must agree to share 50 percent of any profits from the re-sale with the government. What's more, homeowners can only retain equity gains based on a sliding scale. The homeowner would have zero equity from a sale in the first year, with the amount rising 10 percent in each succeeding year and capping at 50 percent from a sale in year five. The equity must be repaid because the maximum amount on the new loans will be capped at 90 percent of the current market value, which automatically gives the previously troubled homeowner 10 percent equity in the home.

Q: Where can consumers find more detailed information about the plan?

A: There is a six-page comprehensive summary of this new housing act that can be located at:

http://banking.senate.gov/public/_files/HousingandEconomicRecoveryActSummary.pdf

The entire 694 page bill can be located at:

http://www.house.gov/apps/list/press/financialsvcs_dem/hr3221_bill_text.pdf