"Hope For Homeowners" Plan Gets Face Lift

[Nov 20, 2008.]

 

The Hope for Homeowners Plan has only received 111 applications since it's inception on October 1st, 2008.

The program, which is voluntary for lenders, was designed to help distressed homeowners refinance their mortgage into one that is more affordable and would allow them to stay in their home. The new loan is then insured by the Federal Housing Administration (FHA) to help protect lenders from future losses.
The belief was that lenders could recoup more money by modifying the existing terms than letting a home go into foreclosure. Unfortunately, very few lenders took advantage of the program as initially written. In order to entice more lenders and borrowers to participate, changes have been amde.

One of the most significant changes is the refinance of the mortgage can now exceed the previously set limit of 90% of current value. Lenders now only need to write loans down to 96.5% of current value limiting their initial loss. The 90% limit will still apply in cases where the new payment represents more than 31% of the borrower's gross income.

Second lien holders no longer have to wait until a home is paid-off to receive a recovery payment when they release their lien. Instead, HUD will make up-front payments making it more attractive for these lenders.

New mortgages can also be structured over a 40-year term to help reduce monthly payments and allow more borrowers to qualify for the program.

Previously, there was a 3-payment test period in which borrowers had to make full and timely payments in order to have the modification made permanent. This is no longer required.

According to John A. Courson, Chief Operating Officer of the Mortgage Bankers Association (MBA), "Expanding the eligibility criteria and making the program less expensive for both the borrower and the lenders will allow us help more borrowers.  By agreeing to immediately compensate subordinate lienholders, HUD is providing additional incentive for those lienholders to release their liens, which will free more borrowers to access the Hope for Homeowners Program."

 

About Author:

Chris Rocks is the Regional Director of the National Credit Federation (NCF), a consumer advocacy group that assists small business owners and consumers overcome debt and credit challenges.