Finance Globe

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HOPE for Homeowners

Are you a homeowner who fears that you won't be able to keep up with your ARM payments once they reset? Or are you already struggling with your mortgage payments? The HOPE for Homeowners Program may be able to help you refinance into an affordable FHA loan so you can avoid foreclosure and keep your home.

The HOPE for Homeowners Program, also known as H4H, launched on October 1, 2008 and will be available through September 30, 2011. This program is part of the Housing and Economic Recovery Act of 2008 that President Bush signed into law in July. The government estimates that as many as 300,000 to 400,000 borrowers may qualify for the H4H Program.

Homeowners who qualify for the program may be able to have part of their mortgage principal forgiven and refinance into a new fixed-rate FHA loan for 90% of the home's appraised value. Your lender will have to agree to the conditions of the H4H program, but government officials believe more lenders will begin to participate even if they don't just yet - the alternative would be to let many more homes go into foreclosure, will be much more costly to mortgage lenders than writing down the amount of the loan to help people who really want to keep their homes. The borrower may choose to remain with the original lender, or they may refinance through a new lender.

The qualifications for the program are listed below. Steve Linnin at H4H says that you should apply for the program if you meet 7 of the 10 conditions:
  • You've made a minimum of six full payments to your mortgage lender, and have not intentionally defaulted on the loan to gain assistance.
  • You live in the home that is being considered for refinance, it is your primary and only residence, and you do not own any additional real estate, including rental property or a vacation home.
  • Homeowners with past bankruptcy or who are currently in bankruptcy are allowed to participate in the program.
  • Borrowers cannot have been convicted of fraud under state or federal laws in the last ten years, and cannot have misrepresented their income or falsified documents in order to qualify for their original mortgage.
  • The total house payment must exceed 31% of the borrower's gross monthly income. This includes the mortgage payment of principal, interest, taxes, and insurance (PITI), as well as Homeowner's Association (HOA) dues, ground rents, special assessments, and subordinate liens.
  • The mortgage being refinanced must have originated on or before January 1, 2008.
  • The types of troubled mortgages that may be considered for the FHA refinance includes conventional loans - whether prime, Alt-A, or sub-prime, and government-backed loans - including VA, FHA, or Rural Development mortgages. The maximum mortgage amount is $550,440.
  • Exotic loans are also okay, including interest-only mortgages, payment-option mortgages, and negative-amortization mortgages.
  • The H4H Program is for owner-occupied residences only. If there are co-borrowers on the current mortgage who do not reside in the home, they will have to quit-claim their interest in the property before you can apply for the H4H Program.
  • Only one unit properties are eligible, including condominium units, cooperative units, and manufactured units permanently affixed to realty.
Potential Obstacles for Homeowners
The lender must agree with the conditions of the H4H Program for the borrower to participate. But some lenders will simply refuse to write down the amount of the loan and would rather take their chances with foreclosure. The reason? Some very hard-hit real estate markets may have declined by as much as 20%. A home that was mortgaged for $300,000 just two years ago may only be worth $240,000 today, and the H4H Program requires that the new loan is written down to 90% of the home's appraised value, meaning an even bigger loss for lenders. So that means the lender would have to be willing to accept a payment of $216,000 instead of the original $300,000 - quite a significant difference. That 20% drop in the home's value, plus an additional 10% on the mortgage write-down may just be too much of a loss for some lenders to willingly accept.

Profits from the future sale of the home has to be shared with the government. So if the new loan will only be for 90% of the home's appraised value, it looks like the borrower gains 10% equity just by participating in the program. But it's not a freebie from Uncle Sam. In exchange for the help with their mortgage, the borrower must share the profits with the government if they ever sell their home. The amount owed to the government will be determined on a sliding scale, depending on how soon the borrower sells after refinancing through the H4H Program. If the borrower sells within one year of refinancing - they'll owe the government 100% of the profits. Each year, up until year five after refinancing, the borrower will owe less to the government if they sell, but they will continue to owe 50% of the profits anytime after the fifth year. So if you take advantage of the program now, and sell your home twenty years later, you'll still owe the government 50% of the profit from the FHA appraisal that your loan was based on.

The borrower must be able to afford the new loan terms. The refinanced loan will be for a fixed-rate, 30 year mortgage, and the borrower will have to pay 1.5% a year into an insurance fund to the FHA, to help protect taxpayers from defaults that are still likely to occur after some borrowers receive help from the H4H Program. The H4H Program is designed to focus on helping homeowners who can afford their homes in the long term, but the Congressional Budget Office (CBO) estimates that as many as about a third of the borrowers who participate in the program will end up having difficulty affording their mortgages in the future. The program can't work miracles for those who simply cannot afford the costs associated with owning a home. You must have the documented income required to afford your new refinanced mortgage.

If you need help with obtaining affordable financing for the home you want to keep, you can:

Go to the HOPE for Homeowners site for informative videos, answers to frequently asked questions, and an online pre-qualification application at

Contact the HOPE NOW Alliance at (888) 995 HOPE

Contact a HUD-approved housing counseling agency at

Contact the FHA at (800) CALL FHA

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