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  • Mary K. Lenahan, J.D., Realtor

Federal Hope for Homeowners Program Offer Limited “Hope” to Homeowners in Foreclosure


Congress under the Bush Administration passed the Hope for Homeowners (“Hope”, also referred to as “H4H”) Program which was allegedly designed to help borrowers who owe more than their homes are worth to refinance into more affordable 30-year fixed-rate mortgages insured by the government.

Although the Hope program is better than “a poke in the eye with a sharp stick”, it offers limited hope to limited homeowners.   In fact, according to Secretary of Housing and Urban Development (HUD), Steve Preston, the Hope program is a failure because it is too expensive and onerous for lenders and borrowers alike. 

Banks Are Not Cooperating

First, consumers need to be aware that there is no “right” to this program.  The program is based on banks “voluntarily” participating in it.  In other words, a bank will only participate if it determines on a case by case basis that its in its own financial best interest to do so.  The homeowner’s interest is not a factor. 

To date, the banks apparently do not believe the Hope program is in their best financial interests.  According to Peyton Herbert, director of foreclosure services at HomeFree USA, a housing counseling firm in Hyattsville:  

“Getting the lenders to agree has been our biggest challenge”.  They want dollar for dollar what’s owed on that loan or something close to it. That’s the fly in the ointment.”  (Emphasis added.)

Homeowners Must Share Equity and Appreciation Ownership Interests with the Federal Government

Borrowers who participate in the program must not only pay hefty fees,  they must split any equity and appreciation in the home with the federal government.  This is how it works.

The Hope program involves a FHA approved lender stepping in and agreeing to re-finance the home.  The existing lender must also agree to accept a loss on its loan by accepting 96.5% of the current market value of the home.

a)     Equity Sharing

Reducing the loan on the house to 96.5% of the current market value leaves approximately 3.5 equity, of which 100% belongs to the FHA, not the homeowner, during the first year.  FHA ownership interest in the equity decreases incrementally to 50% over the next 5 years and then remains at 50%.

b)     Appreciation Sharing

In addition, as the home appreciates in value over the ensuing years, the homeowner must share 50% of the appreciation with FHA.  Hence if the home appreciates $20,000.00 over ten years, $10,000.00 of the appreciation belongs to FHA.  The 50% sharing of appreciation with the FHA is permanent and does not decrease in time. 

Hope Has Onerous Cost Burdens on the Borrowers

The homeowner must pay upfront for mortgage insurance of 3% of the refinance amount, and then an annual premium 1.5%  payable with the mortgage monthly payment. 

Hence a Hope refinance loan involving a $350,000 mortgage will involve an upfront insurance premium of $10,500.00, and then $5,250.00 annually thereafter.  The annual premium ($437.50 per month in this example) will be included in the monthly payments.

Homeowner Qualifications Will Apply To Limited Homeowners

Some of the qualifications for a homeowner are:

1)      The home to be refinanced is a 1-unit primary residence,

2)      The homeowners has no ownership interest in any other residential real estate,

3)     The existing mortgage was originated on or before January 1, 2008, and the borrower has made at least 6 payments on it,

4)     The current monthly mortgage payments exceed 31% of homeowner’s gross income as of March 31, 2008,*

5)     Homeowner is  unable to pay the existing mortgage(s) without help,

6)     Homeowner must certify that they have not been convicted of fraud in the past 10 years or intentionally defaulted on their debts,

7)     Homeowner must certify that they did not willingly provide material false information to obtain their existing mortgage(s)  (i.e. did not misrepresent their income or other debt income information on the loan application)

8)     Homeowner provide two-years of financial records

9)     Homeowner must provide proof of income

10) Homeowner’s debt to income ratio must be at or below 31/43

*The requirement that the mortgage payment must exceed 31% of a borrower’s income as of March 2008, excludes homeowners who have since fallen into trouble.

Sources in the mortgage industry indicate very few if any Hope loans have gone through.  If you have any experience with a loan under the program or with applying for assistance under the Hope program, please let us know and leave a comment below.  

Californians may contact California Attorney Mary K. Lenahan at CAConsumerLawyers.com for questions on Loan Modification, Truth in Lending Violations, Predatory Lending, and Bankruptcy.

 

 

 

 

 

 

 

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4 Responses

  1. […] far, there is a common sentiment has been that the  Banks are not acting in good faith on loan modifications, despite the rhetoric on their web sites and advertisements.   See eg. Class Action against […]

  2. […] there have been a lot of bills passed that sound good, such as “Hope or Homeowners” and “Home Affordable Foreclosure Alternatives” (HAFA), but so far they have been […]

  3. […] there have been a lot of bills passed that sound good, such as “Hope or Homeowners” and “Home Affordable Foreclosure Alternatives” (HAFA), but so far they have been mere […]

  4. […] As we have seen since then, however, these programs have been deemed failures.   See:  Hope For Homeowners Offer Limited Hope;   See article why Home Affordable Modification Program [HAMP] is a […]

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