Hope for Homeowners: New Program Will Help Those in Foreclosure or Those Having Trouble Making Mortgage Payments

Created by Congress, the HOPE for Homeowners (H4H) program will help move those who risk defaulting on their loan or foreclosure into a loan that is more affordable. This is a mortgage option that was designed to keep people in their homes, and is effective until the end of September, 2011.

It has been estimated that this program may help around 400,000 homeowners avoid foreclosure over the next two-and-a-half years. Those who are having trouble making their mortgage payment may be able to have their loan refinanced into a 30-year fixed rate loan with lower payments through H4H.

How H4H Works

The H4H program works by using a built-in mechanism used to raise insurance funds that will cover foreclosures. Potential borrowers will pay a three percent premium up front, plus one-and-a-half percent per year. This is more than the standard FHA one-and-a-half percent up front, and half a percent per year premium. The reason the fees were set so high is that Congress has anticipated a high default rate. This should help the insurance fund that has been set up. The lender will also write down the loan balance for 90 percent of what the current appraised value of the home is.

Although the initial percentage paid up front can be rolled in as part of the refinance, the additional yearly percentage may mean that borrowers will end up with a total interest rate of nearly eight percent (if the loan was six-and-a-half percent). When a certain level of equity is accrued, the one-and-a-half percent premium will end. However, this can take a long time given the current declining housing market.

This new plan may also not completely bar those who took out “liar loans,” or those who falsified information and claimed they had enough money to cover their mortgage. Because it is up to the lender to decide if a borrower previously lied, the only focus is on if they are now telling the truth. Are they making $30,000 a year, and can they cover a $30,000 mortgage?

Borrowers must also meet the income qualifications in order to participate in H4H. If their total housing costs, including the principal, interest, insurance, and taxes, are less than 31 percent of their total income, they qualify. It may rise to 38 percent if the borrower completes a three-month trial at their new rate. However, their total debt must not exceed 43 percent of their income (50 percent after the trial date). The FHA understands that this may disqualify many people, but it is believed that two income households may meet these qualifications the best, and most homes across the nation are valued low enough for this to work. The borrower must also not own a second home, and must agree to fully share how much their home appreciates in the future.

One potential problem with loan modifications is that the bank that collects payments may not own the mortgage. It may simply be a service provider acting on behalf of the investors, who own securitized mortgages that were cut up and sold as package deals. The investors’ agreement is a must in order for a mortgage to be refinanced, and many investors may not agree to this.

Toxic loans have become a household phrase in the economic climate today. And many people may worry about lenders dumping toxic loans into the program to get rid of them. However, because the income requirement must be verified, the only ones able to refinance will be qualified borrowers. Even if the borrower may default in the end, most lenders will still not want to make a bad loan. And the lender will not continue to work with the borrower if they are not able to perform well.

How to Participate

Interested borrowers should contact their lender, a HUD counseling agency or the HOPE Now Alliance at (888) 995-HOPE. Further details may also be found at www.fha.gov.

For more information about qualifying for 4H4 or if you are in danger of having your home foreclosed upon in the Michigan area, please contact Jay Trucks & Associates, PC.

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