Hope for homeowner program restarted by HUD

Great news about the restart of Hope for Homeowners program! The Hope for Homeowners program will be taking applications shortly! I am very excited to announce that the Helping Families Save Their Homes Act of 2009 has amended the National Housing Act, providing for key changes in the HOPE for Homeowners (H4H) Program. The H4H Program is available for any loans originated from January 1, 2010 until September 30, 2011.

This program was enacted back in 2008, and was not an immediate success. Only a few banks were authorized by HUD to initiate these loans, and each loan application was subject to some very difficult underwriting criteria. Only a few of these loans closed last year and this year, and yours truly was one of the mortgage bankers that were able to successfully close an H4H loan. In one of my deals, I was able to save my client almost $ 1000 per month, and keep her from losing her home. She was behind 10 months for so on her mortgage. However, it was not an easy loan to close, and basically it took months to get it underwritten and closed.

The newer, updated version of this program has made some major changes that will make it easier to implement. This post, and several following it, will give readers an idea as to what the program is about, and what borrowers will need in order to secure one of these loans.

Key changes to the H4H Program:

- Borrowers are ineligible if their net worth exceeds $1,000,000,

- Borrowers must not have defaulted on any substantial debt in the last 5 years,

- The age of appraisal cannot be older than 120 days.

- Reduced mortgage insurance premiums, dropping to.75% per month, down from 1.5%! Up front mortgage insurance premium required was also dropped from 3% to 2.0%. Both of these provisions make the deal much more affordable.

- Revised loan-to-value and debt-to-income ratios,

- Maximum loan-to-value excludes the Upfront Mortgage Insurance Premium,

- Eliminated requirement for obtaining most recent two year tax returns,

- Eliminated special lender and underwriter certification,

- Shared Appreciation feature eliminated. Previously, borrowers were required to share any future appreciation with HUD. Big stumbling block!

A. Determining Eligibility to participate in the program

Here is what a bank will use to determine Borrower Eligibility Mortgage Status: Borrowers are eligible for this Program, if:

- They have not intentionally defaulted on their existing mortgage(s) or any other substantial debt in the last 5 years (Intentionally defaulted means the borrower had available funds that could pay the mortgage and other debts without hardship. Debts subject to a documented bona fide dispute may be excluded. Substantial debt is any amount in excess of $100,000.) AND

- If delinquent on their mortgage, have made a minimum of six (6) full payments during the life of the existing senior mortgage.

If you are in, or where in bankruptcy, you are not precluded from participating in the H4H program.

Principal Residence: Borrowers must reside in the property securing the loan being refinanced, and may not have an ownership interest in other residential real estate (except for any inherited properties), including second homes and/or rental properties. In other words, you must quit-claim any other homes you own.

Net Worth: No individual borrower may have a net worth in excess of $1,000,000 at the time of the loan application. Banks are not required to include Qualified Retirement Plan accounts. Qualified Retirement Plans include, but are not limited to, IRA plans, 401(k) plans, the Thrift Savings Plan, Keogh plans, 403(b) plans, and 457 (b) plans.

Fraud Convictions: Borrowers must certify they have not been convicted of fraud under state and Federal laws in the last 10 years.

False Information: Borrowers must certify that they did not knowingly or willfully provide material false information to obtain the new mortgage under the H4H program.

Mortgage Payment-to-Income: In order to qualify for this loan, one of the most important characteristics is that at the time of the application to a lender, the borrower MUST HAVE a monthly mortgage payment-to- income ratio (DTI) on all existing mortgages greater than 31 percent of the borrower’s gross monthly income. In other words, if your current income is $ 6000 per month, your mortgage payment, including taxes, insurance, home owner association fees, and 2nd lien payments MUST be no less than $ 1860.00 per month. If the payment you have now is $ 1400 per month, you don’t qualify for the loan because your DTI would be 23%, which is below 31%.

In order to determine whether your income and debt ratio would be qualified, the bank will ask you for employment and income documents dated at the time of the application. They will also ask your bank to give them the total monthly mortgage payment including any amounts due on subordinate liens. If you don’t escrow your taxes and insurance, you will need to provide that info also.

Mortgage Eligibility

Origination Date: The mortgage being refinanced must have been originated on or before January 1, 2008. Loans originated during 2008 and 2009 will not be eligible at all.

Primary Mortgage: Your current lender will be required to do the following:

- Waive all prepayment penalties and late payment fees (including insufficient funds fees) on the mortgage.

- Agree to accept the proceeds of the new H4H mortgage as payment in full, and

- Release their outstanding mortgage liens.

Subordinate Mortgage: Each holder of an existing subordinate mortgage must:

- Waive all prepayment penalties and late payment fees (including insufficient funds fees) on the mortgage

- Agree to accept the upfront payment as payment in full; and

- Release their outstanding mortgage liens.

Mortgage Type and Payment Characteristics: Any type of mortgage is eligible for refinancing under the H4H Program, including conventional (prime, Alt-A, subprime) or government-backed (FHA, VA, or Rural Development), fixed-rate or an adjustable rate mortgage; and the existing loan can be interest only, payment option arms, negative amortization and/or any other exotic features.

Property Eligibility

Only Residence: One to four unit properties are eligible. The property must be the borrower’s primary and only residence in which they have an ownership interest (if there are non-occupant co-borrowers, they will need to quit claim their interest in the property prior to the occupying co-borrowers applying for the H4H Program);

An exception is provided for borrowers who – due to inheritance – have an ownership interest in other residential property.

APPRAISAL of the property must be performed by an FHA certified appraiser. Banks are ordering the appraisals through management companies, not to appraisers directly. A typical fee for an FHA single family home for example may be $ 500, and usually must be paid for in advance by a borrower. Usually, a bank will order the appraisal only when it appears that the loan has an excellent change of getting underwritten based on what information and data you have submitted to the lender. Should your loan be more that the house is worth, the new bank will begin the process of negotiating with your current lender for what is called a short payoff. I’ll have posts on this subject later on in week.

B. Term and Rate on the H4H Mortgage

Only 30-year term, fixed-rate mortgages may be offered under this Program. The interest rates on these loans will be comparable to regular FHA loans.

C. MORTGAGE INSURANCE PREMIUMS- WHAT THE HECK ARE THEY!

The Upfront Mortgage Insurance Premium (UFMIP) is 2.00 percent of the base loan amount. It was 3%. For example, if you need $ 200,000, then the UFMIP is $ 4000 and it is ADDED to the $ 200,000 base loan. You are financing only $ 204,000. The new program saves you $ 2000 in financing costs. The Annual premium (collected monthly) is.75 percent of the base loan amount, down from 1.5%. So on this same loan, the monthly amount would be $ 200,000 x.75%/12 = $ 127.50. Again, you would save $ 127.50 per month under this new deal!

D. Calculating the Maximum Mortgage Amount

The amount of the H4H mortgage cannot exceed:

One-unit $550,440

Two-units $704,682

Three-units $851,796

Four-units $1,058,574

For a three- or four-unit property, the property rental income must be sufficient to pay the mortgage.

E. Maximum Loan-to-Value

The status of the mortgage being refinanced will determine the maximum loan-to-value ratio on the new H4H mortgage.

Borrowers Current on Their Mortgage: The maximum loan-to-value ratio on the new H4H mortgage is 105 percent of current appraised value (excluding UFMIP). Borrowers delinquent on their mortgage have two alternative loan-to-value (LTV) and debt-to-income (DTI) calculations are needed to be performed in order to qualify borrowers for the program:

1. A maximum LTV of 96.5 % of current appraised value (excluding UFMIP) is allowed provided the borrower’s mortgage payment-to-income ratio and a total debt-to-income ratio under the new Program mortgage do not exceed 31 % and 43%respectively, or

2. A maximum LTV of 90 percent of current appraised value (excluding UFMIP), the borrower’s mortgage payment-to-income ratio and a total debt-to-income ratio may be up to 38 percent and 50 percent, respectively. I will post an example of how this would work shortly. However, for borrowers with scores below 500, the maximum loan-to-value ratio on the new H4H mortgage is 90 percent of value.