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Uncle Sam Demands A Piece of the Action

by Peter G. Miller
July 31st, 2008

The new Hope loan program created under the FHA reform measure has been variously described as a “bailout” and a “giveaway.” You wonder if the folks opposed to the FHA measure actually bothered to read it.

Those who get HOPE loans will be paying through the nose for the privilege. Lenders will be forced to take a loss for every loan refinanced under the HOPE program. As to borrowers, they may be amazed by the costs to refinance.

There’s a 3 percent up-front mortgage insurance premium (MIP) plus a 1.5 percent MIP annual fee on the unpaid balance, paid in monthly installments.

And then there is the little matter of equity sharing. Any appreciation on properties financed under the Hope program will be shared with Uncle Sam, anywhere from 50% to 100% of any profit will go to the government.

Don’t believe it? Just look at the schedule below from the FHA reform bill.

(k) EQUITY AND APPRECIATION.

(1) FIVE-YEAR PHASE-IN FOR EQUITY AS A RESULT OF SALE OR REFINANCING.– For each eligible mortgage insured under this section, the Secretary and the mortgagor of such mortgage shall, upon any sale or disposition of the property to which such mortgage relates, or upon the subsequent refinancing of such mortgage, be entitled to the following with respect to any equity created as a direct result of such sale or refinancing:

“(A) If such sale or refinancing occurs during the period that begins on the date that such mortgage is insured and ends 1 year after such date of insurance, the Secretary shall be entitled to 100 percent of such equity.

“(B) If such sale or refinancing occurs during the period that begins 1 year after such date of insurance and ends 2 years after such date of insurance, the Secretary shall be entitled to 90 percent of such equity and the mortgagor
shall be entitled to 10 percent of such equity.

“(C) If such sale or refinancing occurs during the period that begins 2 years after such date of insurance and ends 3 years after such date of insurance, the Secretary shall be entitled to 80 percent of such equity and the mortgagor shall be entitled to 20 percent of such equity.

“(D) If such sale or refinancing occurs during the period that begins 3 years after such date of insurance and ends 4 years after such date of insurance, the Secretary shall be entitled to 70 percent of such equity and the mortgagor shall be entitled to 30 percent of such equity.

“(E) If such sale or refinancing occurs during the period that begins 4 years after such date of insurance and ends 5 years after such date of insurance, the Secretary shall be entitled to 60 percent of such equity and the mortgagor shall be entitled to 40 percent of such equity.

“(F) If such sale or refinancing occurs during any period that begins 5 years after such date of insurance, the Secretary shall be entitled to 50 percent of such equity and the mortgagor shall be entitled to 50 percent of such equity.

“APPRECIATION IN VALUE. — For each eligible mortgage insured under this section, the Secretary and the mortgagor of such mortgage shall, upon any sale or disposition of the property to which such mortgage relates, each be entitled to 50 percent of any appreciation in value of the appraised value of such property that has occurred since the date that such mortgage was insured under this section.”

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