“HOPE for Homeowners”

News clues

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Today’s News Clues is about the “HOPE for Homeowners” Federal Mortgage Program.  Protect your Client and your commission.

There was a program passed into law this summer for homeowners trying to renegotiate their mortgages named “HOPE for Homeowners,” and nicknamed H4H.  The intent is to keep owners from defaulting on their loans and going into foreclosure.  If you are assisting with loan modification for a client, there are a few things you need to know about the H4H program.

Federal Guidelines include:

The law requires participating lenders to agree to refinance and reduce a loan to 90% of the current appraised value of the home. The new loan must be a 30 fixed rate mortgage.

The Federal Government (FHA acts as an investment partner in the equity of the property for as long as the owner owns the home.  When the house sells, the owner relinquishes or splits any equity in the home with FHA at closing, even if the H4H loan is no longer in force.

Refinancing or paying off the loan does not remove the requirement of the agreement to split the equity with FHA.

There is a sliding scale of the percentage due to FHA at closing, based on the length of the period of ownership after refinance.  Less than one year after the refinance, FHA gets 100% of the equity at closing if the home sells.  The percentage goes down approximately 10% per year thereafter, with a bottom split of 50% of the home’s equity to FHA due at closing.

The holder of a H4H loan will never pay less than 50% of the home’s equity at closing to FHA for as long as they own the home.

If the property mortgaged with a H4H loan increases in value after the refinance, the percentage due to FHA remains the same and applies to the full amount of equity at closing.

Some costs will be considered a reduction of equity.  The percentage split will not apply to closing costs or the cost of improvements made during ownership.  However, costs of maintenance (new roofed.) will not be exempt.

There is a much higher FHA Mortgage Insurance Premium (MIP) on this loan.  There is a 3% upfront MIP payment to obtain the loan, and a 1.5% annual premium is added to the monthly payments.  Typically, FHA loans have only a 2.125% upfront fee and a .5% annual MIP.

With so many issues connected with this loan program, please advise your clients to get all of the details in writing, and have it explained carefully by their lender.  They should also compare it with all other options available to them, as the equity split will take half of the owner’s accumulated wealth in their home.

Solid Source agents may go to www.solidsourcenc.com for updated information posted on our blog.