YouTube: Foreclosure Freedom Network Show #3: Hope 4 Homeowners!

Foreclosure Freedom Network Show #3: Hope 4 Homeowners!

Hi, this is Connie Saunders with the Foreclosure Freedom Network Show!  Todays show is on Hope 4 Homeowners!  This is a failed program approved first by Congress for action October 1st 2008.  Though they initially projected 400,000 applicants, I only know of one person who actually got approved and the loan actually issued.  The wheels simply never got greased for this program largely because it was voluntary on the lenders part and most lenders wanted to hold out for better assistance.

With the new Home Affordable Stimulus Plan and Homeowner Affordability Modification Plan or HMP, both issued March and April of this year, Obama and Congress have added emphasis on the Hope 4 Homeowners Plan, in fact now Servicers offering the new HMP Must explore Hope 4 Homeowners qualifications for all who are accepted for these loan modifications.  So what is the Hope 4 Homeowners program anyway?

Homeowners who will greatly benefit from this are ones who plan to live in the home at least 5 more years and whose property value has fallen exponentially from the time of the note being refinanced.  In this program though the bet would be to move after that point before the home prices go up much higher than 2006 peak in the bubble, or the shared equity could end up being a negative in the end.  Homeowners that are saved from foreclosure today by this and who really want to continue in their home, will be benefited regardless of this ultimate negative cash flow, because 50% of nothing is nothing but 50% of future appreciation of your home means the family can continue to live in their home for as long as they choose and don’t have to pay interest and principal on a much larger amount!!

The bigger the differential in current value to prior value, the bigger the value of this program to the homeowner.  Most other lender modifications will bundle up the principal balance forgiveness and put it in a balloon note at the end of the loan, but it will still be due.  In the H4H loan, this principal is forgiven, conditionally, with the key contingency being that the homeowner shares the equity with the government (who then administers this and reimburses both Primary and subordinate lien holders later - once the home is sold).

With the H4H loan, even after it is completely paid off, future sale will trigger this 50% appreciation sharing.  This is definitely something to consider when planning for one’s homes future.   But assuming for now the homeowner wants to stay in their home and agrees to the terms of equity sharing for future appreciation; here is how to apply for the program and the details of it.

There are four main avenues to apply for this program:
a. Homeowners may contact their existing lender or any new lender to discuss how to qualify.
b. Servicers working with troubled homeowners may determine this is the best solution for them to avoid foreclosure.
c. Originating lenders looking for ways to refinance potential customers and are willing to work with Servicers to assist distressed homeowners.
d. Counselors working with troubled homeowners refer them to this solution with a mutually agreeable solution to avoid foreclosure.
e. The underwriter must be FHA approved.

Lenders are now required, as part of their fiduciary responsibility to assess their portfolio and perform a cost to benefit analysis to determine the feasibility of offering this program to struggling homeowners.

1. Lenders will take the loss on the difference between the existing obligations and the new loan.  The new note amount will be set at 96.5% of the Current appraised value of the home.  A lender may choose to provide the homeowner with an affordable monthly mortgage payment through a loan modification rather than accepting the losses associated with declining property values.
2. For a borrower to be eligible,
a.  His loan must have been originated on or before 1/1/2008.
b. Existing mortgage payments exceed 31percent of the borrowers gross monthly income.
c. The homeowner didn’t intentionally default.
d. The homeowner does not have ownership interest in other residential real estate and wasn’t convicted of fraud in the last 10 years.
e. The homeowner didn’t provide false information about his income or other vital data to obtain the mortgage that is being refinanced into the H4H mortgage.
3. The new mortgage will be based on 96.5% of the Current Market Value and may then create a much more viable situation for the homeowner.
4. The homeowner and government will share equity increases over the original note amount of this H4H loan when the property is later sold, based on a sliding rate giving the homeowner 10% after 1 year, 20% after 2nd up to 50% and will fix there until the home is sold (not refinanced but sold)  This lien will be on the property until the sale date.
5. There will be prohibitions against new junior liens against the property unless they are directly related to property maintenance.
6. There are upfront fees that must be paid, or will be added onto the loan, such as a 3% upfront insurance premium, which more or less will wipe out any actual equity at first in the home, even though one is agreeing to share this equity.  So this is a bit misleading.
7. The homeowner must sign that they didn’t intentionally default, meaning they didn’t have readily available funds at the time payment on the mortgage or other debt was due, that could have paid the mortgage or other debt without undue hardship.  They must also sign they weren’t convicted of Fraud and agree to a background check and must attest they didn’t knowingly or willfully furnish false information for the purpose of obtaining their existing mortgage.  One is also agreeing there will be punishments of fines or imprisonment of up to 5 years should these statements be false, so be sure!

This loan is an FHA loan and therefore will require Mortgage Insurance.  While the mortgage payments will be reduced with this, there will be additional due because of the cost of this Mortgage Insurance, which is approximately 1.5 points, a significant factor.  Let’s say the FHA interest rate is 4.5%, the loan will be at 6% interest after the Mortgage Insurance is applied to it.  Of course the total loan amount being factored in will likely be a much less amount than the principal of the loan being refinanced out of, but all of these factors need to be explored and understood to ensure this is the best loan for you.

Of course the homeowner must make this payment in a timely manner.  What’s done now is for the lender sponsoring this to put someone onto a trial modification, with similar payment structure to test the waters and ensure the homeowner can keep to the payment schedule.

Subordinate lien holders may choose to share future appreciation, receiving a certificate evidencing their interest as an obligation backed by HUD or they may take a lesser payout of cents on the dollar for the lien.  Later, once the home is sold Primary lien holders are paid in full up to the full dollar amount of its interest, not to exceed the amount of available appreciation, and then secondary lien holders in sequence until all prior lien holders are satisfied or the amount of available appreciation is exhausted.  After this the additional funds will go back to FHA.