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HUD Eases Hope For Homeowners Benchmarks

by Peter G. Miller
November 20th, 2008

As we have reported, the Hope for Homeowners program has been, well, hopeless. For the month of October HUD reported that it received a total of 111 H4H loan applications — and approved none. In contrast, HUD also said that it approved 88,784 FHA mortgages during the second two weeks of October.

HUD now says that it will provide new “flexibility” for the Hope for Homeowners program, something that should be welcome given the woeful results seen to date.

According to HUD, “the HOPE for Homeowners (H4H) Board of Directors has approved changes to the program to help more distressed borrowers refinance into affordable, government-back mortgages. The changes will reduce the program costs for consumers and lenders alike while also expanding eligibility by driving down the borrower’s monthly mortgage payments.”

Major 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 lienholders; 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.”

You’re kidding. Continue to serve? There has been no service so far. Nothing.

Given that more than 8,000 a day receive foreclosure notices it would be great to have a robust, successful Hope for Homeowners program. That said, not only is H4H a bust to date, so are the widely-publicized FHASecure loans, a program originally announced as an effort to help households facing foreclosure. In fiscal 2008 only 3,794 delinquent conventional borrowers were able to refinance with FHA loans — that’s about 76 borrowers per state over the course of 12 months.

Below is the rest of HUD’s statement which explains the new Home for Homeowners standards in detail.

BACKGROUND

Increasing the Loan-to-Value and Adjusting Debt-to-Income Ratios

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 lienholders. 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 negotiations among the existing lienholders, the new H4H lender, and the borrower.

Immediate Payments to Subordinate Lienholders

H4H will offer subordinate lienholders an immediate payment in exchange for releasing their liens, to permit more borrowers access to the program. Previously, subordinate lienholders 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 lienholders were not guaranteed any return at all. To address this problem, the subordinate lienholders may now receive an immediate payment at the time the H4H loan is originated.

Extending Loan Terms from 30 to 40 years

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.

The HOPE for Homeowners program was authorized by the Housing and Economic Recovery Act of 2008. A Board of Directors was charged with establishing underwriting standards to ensure borrowers, after any write-down in principal, have a reasonable ability to repay their new FHA-insured mortgage. The program began October 1, 2008, and will end September 30, 2011.

The HOPE for Homeowners Board of Directors includes HUD Secretary Steve Preston, Treasury Secretary Henry Paulson, Federal Reserve Board Chairman Ben Bernanke, and FDIC Chairman Sheila Bair. They have named the following people to serve on the board as their designees: FHA Commissioner and Chairman of the Board Brian Montgomery, Federal Reserve Board Governor Elizabeth Duke, Treasury Assistant Secretary for Economic Policy Phillip Swagel, and Federal Deposit Insurance Corporation Director Tom Curry.

Read more about HOPE for Homeowners at www.hud.gov/hopeforhomeowners.

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