Hope for Homeowners – will it stop foreclosures?
What is Hope for Homeowners?
Hope for Homeowners it is a loan program that was part of the Housing and Economic Recovery Act of 2008. The guidelines for the product were released by FHA on October 1st, 2008. The program is designed to be an alternative to foreclosure that servicers can use to help keep the client in their home, since a foreclosure is costly for a servicer and bad for the client and the economy.
Currently, we’re not aware of any lenders or services participating in Hope for Homeowners. The program has some very strict guidelines and requires the client to take on 2 extra liens in addition to their new mortgage, so it’s unclear now whether homeowners or lenders will participate.
We’ll answer a few common questions here for informational purposes, but at this time, Quicken Loans is not participating in Hope for Homeowners. However, we do specifically support a proposed remedy to the housing crisis called A Solution That Works. You can read more about that here.
How does Hope for Homeowners work?
Hope for Homeowners is a new loan program for homeowners with adjusting mortgages, homeowners with mortgages they can no longer afford or homeowners with loans larger than the current value of their home.
The purpose of the Hope for Homeowner loan is to get the homeowner an affordable payment and keep them in their homes. It requires that the current lien holder (the homeowner’s current lender/loan servicer) “write down” or forgive a portion of the client’s principal in order to make the mortgage payment affordable for the homeowner. The loan will be written down to a maximum new loan-to-value of 90% (including costs of the loan).
The lien holder must agree to accept the new, smaller loan as payment in full. The Hope for Homeowners loan would also require all existing liens to be released. In exchange for the for a lower loan-to-value, the client will sign a second and third lien agreeing to share equity and future appreciation.
How do the new 2nd and 3rd liens – equity and appreciation sharing work?
The new second lien is called a shared equity mortgage or SEM. For writing down the homeowner’s old mortgage amount, HUD is owed a portion of the equity based on a sliding scale: During the 1st year 100% of equity owed to HUD; 2nd year 90% of equity owed to HUD; 3rd year 80% of equity owed to HUD; 4th year 70% of equity owed to HUD; 5th year 60% of equity owed to HUD;6th year and beyond 50% of equity owed to HUD. At the time of refinance of the new Hope for Homeowners mortgage or sale of the home, the SEM must be paid off according to the sliding scale.
The new third lien is called a Shared Appreciation Mortgage or SAM. HUD is owed 50% of the increase in value of the home. The SAM is only paid or released when the home is sold, unlike the 2nd lien, which can be released when the home is refinanced. For example, if the client stays in the home for 8 years and the value increases by $100,000 in that 8 years, when the home is sold, the client will owe HUD half of the appreciation, or $50,000 in this scenario. The SAM can be subordinated if they refinance out of the H4H loan.
Does a client need to be facing foreclosure to qualify for Hope for Homeowners?
The client does not even need to be delinquent to qualify for this mortgage. They can be current, delinquent, in foreclosure or even in bankruptcy and still qualify for Hope for Homeowners.
What are the disadvantages of Hope for Homeowners that the client should consider?There are greater costs involved with this loan. The upfront mortgage insurance is 3.0% and the annual monthly mortgage insurance is also higher than a typical FHA loan at 1.5%.More documentation will be required of the client in order to qualify, including 2 years tax returnsThey are required to share their equity and appreciation with HUD in accordance with the 2 new liens.The new 3rd lien, (shared appreciation mortgage) will not be eliminated until the home is sold.Max loan amount is $550,440 nationwide.Client cannot own any other properties
As you can see, the Hope for Homeowners program is very complex and it’s unclear whether or not lenders will begin to participate or modify problem loans on their own. There are certainly other options out there, including A Solution That Works, which is subsidized by the government instead of lenders and homeowners. So make sure you’re informed and are supporting the program you feel will help homeowners best.
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