Written By: Joan Ewing, Op-Ed Writer
Hello All - I understand that most persons who read this blog are loan processors, loan originators and others in the mortgage industry. This blog is not necessarily directed to loan processors or originators but rather to those who might know someone who may be facing foreclosure. The HUD.gov site is just a wealth of information.
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Congress created the HOPE for Homeowners (H4H) program for those at risk of default and foreclosure refinance into more affordable loans. H4H is an additional mortgage option designed to keep borrowers from losing their home.
The program went into effect October 1, 2008 and continues until September 30, 2011.
It is estimated that 400,000 homeowners could avoid foreclosure through this program. If you know anybody that is having problems making their mortgage payments; perhaps refinancing under this program into a new mortgage is the answer.
Borrowers may contact their present lender and/or they may contact a new lender to discuss how to qualify for eligibility for this program.
Let’s look at what the lender will consider when they are contacted by a borrower. Every lender will be assessing each loan very carefully and will perform a cost-benefit analysis to determine the feasibility of offering this program to homeowners. Of course, everyone will not qualify so if you are talking to struggling homeowners regarding this program, it is important that you not build their hopes.
The lenders will be looking at the difference between existing obligations and the new loan, which is set at 96.5% of current appraised value. The lender may choose between a loan modification of the current mortgage or accept the losses associated with declining values.
Lenders who determine that the H4H program is a feasible option will then assess the borrowers’ eligibility for the program. The borrower must meet criteria such as - existing mortgage was originated before January 1, 2008; Existing mortgage payments must exceed 31% of gross monthly income - as of March 1, 2008; the homeowner did not intentionally go into default and must not have been convicted of fraud in the last 10 years and Federal and state law; and lastly that the homeowner did not give false information to obtain their current mortgage.
The borrower must be made aware of the 3% upfront mortgage insurance payment and the 1.5% annual premium. The borrower must also realize their will be an Equity and appreciation sharing with the Federal Government (we will discuss in a later blog). And there can be no second mortgages added to the property.
Then there needs to be negotiations between borrowers and lien holders - The lender must negotiate with the existing lien holder to waive all prepayment penalties, existing late fees and agree to accept the loan proceeds of the new loan as total repayment of the existing mortgage. If there is currently a second mortgage on the property, there must be negotiations to participate in the loan modification. FHA could offer to the 2nd mortgage holder that they would share in the future appreciation.
After all of the pre-qualifications, the lender will then qualify the borrower for the new H4H mortgage using established guidelines.
During the underwriting the lender will calculate future appreciation for each subordinate lien holder. At settlement the subordinate lien holders will receive a certificate that evidences their interest as an obligation backed by HUD, with payment as calculated by HUD’s appreciation schedule.
Following closing, the lender will record, all documents for the 1st mortgage and, a shared equity note mortgage. These mortgages will be serviced by FHA.
Upon sale of the property, the homeowner will use their sale proceeds to pay off the H4H mortgage as well as the shared equity and shared appreciation mortgages.
If the homeowner fails to make the first payment on their new H4H mortgage, the H4H statute prevents FHA from paying claim benefits to anyone holding the mortgages.
While some of these procedures may seem confusing and will require a lot of work - it is important to remember it may save thousands of homeowners from losing their home. We will monitor the success of the program as the year progresses.
Need Underwriting Training? CLICK HERE:http://www.UnderwriterTraining.com
Until next time - Keep processing. More later.
About The Author
Joan Ewing - As an op-ed writer and active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base.
