Administration Alters HOPE for Homeowners Program, Reducing Lenders’ Costs

United States Housing and Urban Development (""HUD"":http://www.hud.gov) Secretary Steve Preston today announced that the ""HOPE for Homeowners"":http://www.hud.gov/hopeforhomeowners (H4H) board of directors has approved changes to the program, designed to help more distressed borrowers refinance into affordable, government-back mortgages. The changes will reduce the program costs for consumers and lenders alike, and are expected to expand eligibility by driving down borrowers' monthly mortgage payments.
Federal housing officials have received fewer than 115 H4H applications since the program took effect October 1, compared to the more than 3 million homeowners that are said to currently be in some stage of foreclosure, said a recent article in the %{=FONT-STYLE: italic}""Orlando Sentinel"":http://www.orlandosentinel.com%.
According to Preston, since the ""program's implementation"":http://dsnews.comview_story.cfmxid=2970, it became evident that meaningful changes were needed to ensure broader uptake and success. ""These modifications should increase lender participation and help more families who are having difficulty paying their existing mortgages, but can afford a new affordable loan insured by HUD's ""Federal Housing Administration"":http://www.fha.gov (FHA),"" Preston said.
By taking full advantage of the new authority provided under the Emergency Economic Stabilization Act (EESA), H4H can now provide additional mortgage assistance to struggling homeowners and provide lenders with a more viable refinancing option, as a result of the following three significant alterations.
%{=FONT-WEIGHT: bold; FONT-STYLE: italic}Increasing LTV and Adjusting Debt-to-Income Ratios%
The program will increase the loan-to-value ratio (LTV) on H4H loans to 96.5 percent for borrowers whose mortgage payments represent no more than 31 percent of their monthly gross income and household debt no more than 43 percent. ""Originally"":http://dsnews.comview_story.cfmxid=2970, the new loan amount was set at 90 percent of the current appraised value, forcing lenders to write-off 10 percent of a failing loan before the government would refinance it. According to HUD, this change will expand the number of eligible borrowers. Raising the loan-to-value ratio reduces the gap between the existing loan balances and the new H4H loan and decreases losses for the existing primary lienholders.
Alternatively, the program will continue to offer borrowers with higher debt loads a 90 percent loan-to-value ratio on their H4H loans. This LTV ratio will include borrowers with debt-to-income ratios as high as 38 and 50 percent. In conjunction with the LTV change, H4H will eliminate the trial modification that was previously required. This measure was too complicated and required delicate negotiations among the existing lienholders, the new H4H lender, and the borrower, HUD said.
%{=FONT-WEIGHT: bold; FONT-STYLE: italic}Immediate Payments to Subordinate Lienholders%
H4H will offer subordinate lienholders an immediate payment in exchange for releasing their liens, to permit more borrowers access to the program. Previously, subordinate lienholders who released their liens were only eligible to receive a small recovery payment when the home owned by the H4H borrower was sold. Given the amount of time that would pass between the creation of the H4H and the ultimate sale of the home, as well as the tremendous market uncertainties, subordinate lienholders were not guaranteed any return at all. To address this problem, the subordinate lienholders may now receive an immediate payment at the time the H4H loan is originated.
%{=FONT-WEIGHT: bold; FONT-STYLE: italic}Extending Loan Terms from 30 to 40 years%
To assure that borrowers are put into the most affordable monthly payment possible, H4H will permit lenders to extend the mortgage term from 30 to 40 years. For borrowers with very high mortgage and household debt loads, extending out the amortization period may reduce their monthly payments enough to make it possible for them to qualify for this rescue product and save their homes.
""These changes will further encourage lenders to take a hard look at this program before heading down the path to foreclosure and will provide families with another resource to refinance into a loan they can afford,"" said FHA Commissioner Brian D. Montgomery. ""HOPE for Homeowners will continue to serve as another loss mitigation tool that can be used to help families keep their homes.""
Commenting on the newly announced changes, John A. Courson, COO of the ""Mortgage Bankers Association"":http://www.mbaa.org (MBA), said, ""Mortgage lenders welcome the additional flexibility that today's changes to the Hope for Homeowners program will provide. Hope for Homeowners is an important tool that lenders can use in the fight to keep families in their homes and out of foreclosure.""
The HOPE for Homeowners program was authorized by this summer's Housing and Economic Recovery Act (HERA). A board of directors was charged with establishing underwriting standards to ensure borrowers, after any write-down in principal, have a reasonable ability to repay their new FHA-insured mortgage. The program began October 1, 2008, and will end September 30, 2011.
The H4H board of directors includes HUD Secretary Steve Preston, Treasury Secretary Henry Paulson, Federal Reserve Board Chairman Ben Bernanke, and FDIC Chairman Sheila Bair. They have named the following people to serve on the board as their designees: FHA Commissioner and Chairman of the Board Brian Montgomery, Federal Reserve Board Governor Elizabeth Duke, Treasury Assistant Secretary for Economic Policy Phillip Swagel, and FDIC Director Tom Curry.
To learn more about HOPE for Homeowners and the most recent program changes, ""click here"":http://www.hud.gov/hopeforhomeowners.