FHA Mortgage Guidelines:  For the Professional

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Hope for Homeowners, H4H

Hope for homeowners is a program designed to assist homeowners, at risk of foreclosure, to refinance to a 30 year fixed rate FHA mortgage.  This H4H program is effective October 1, 2008 through September 30, 2011.

I have tried to include the major benefits and guidelines below but I have also provided the link to the Mortgagee Letter 2008-29 that covers all the guidelines and implementation issues.

Please read carefully.  The guidelines make this a very restrictive and expensive loan.  I don't think many people will qualify for it but worse, if they do I don't know why they would want this loan.  The homeowner is giving away his future equity.

I don't see many lenders wanting to support this program either.  All they would be doing is deferring their loss.  I think it is a lose, lose program.  If you feel differently or know of anyone that this has really helped, please let me know.  I know there is hope but I just don't see it in this program.  My mind is open, sort of.

Basic guidelines

All FHA approved lenders may originate under this program but keep in mind that lender participation is completely voluntary.

This loan is for one unit primary residence only AND the homeowner/borrower may NOT have an interest in any other residential real estate.

The current mortgage (any type) was originated on or before January 1, 2008 and the borrower has made at least 6 payments.

Their current mortgage payment exceeds 31% of their gross income as of March 31, 2008.  (I don't understand the significance of March 2008, do you?)

Owners can't make their current mortgage payment without help.

The borrowers must show "that they have not been convicted of fraud in the past 10 years or intentionally defaulted on their debts, and that they did not willingly provide false information to obtain their existing mortgage".

Unlike the FHA secure, the borrowers may be current or delinquent on their current mortgage payments.

Maximum Loan amount is $550,440 Nation Wide. (Wonder how then came up with that number??)

Expensive: Upfront MIP is 3% and the monthly MIP is 1.5%

Normal FHA guidelines for closing costs apply, they may be:

  1. Financed into the new loan provided they do not exceed 90% LTV.
  2. Paid from borrowers assets
  3. Paid by the servicing lender or third party (Federal, State, or Local program)
  4. May be paid by originating lender through premium pricing.

This is where it gets kind of scary and I wonder why any borrower or lender would be interested in this program.  I hope I am wrong.  Like I said, don't be afraid to inform me of my ignorant ways!

The maximum LTV is 90% of the Appraised value.  Think about that and consider the loss to the original lender and then taking that loss to establish  new equity for the new loan.  This must be new math. I don't know, it just doesn't compute in my mind.  It seems like someone is getting screwed, not to mention that the homeowner gives that equity away when they take the new loan.  Ok, so who owns the equity that was paid for by the previous lender?  FHA?  It will all become clear soon, hang in there.

  • The holders of existing mortgage liens must waive all prepayment penalties and late payment fees.
  • The existing first mortgage holder must accept the proceeds of the H4H loan as full settlement of all outstanding indebtedness.  Paid in Full, Right!
  • Existing subordinate lenders must release their outstanding mortgage liens.
  • The borrower must agree to share both the equity CREATED at the beginning of this H4H mortgage and any future appreciation.
  • The borrower cannot take out a 2nd mortgage with in the first 5 years of the loan except under certain extreme circumstances for emergency repairs.

There is something wrong with this picture.  How do you create 10% equity from a 20% loss, and who owns it, the equity? ... not the borrower, FHA?  Ok, now if the original 1st mortgage was a FHA insured loan then the 20% loss would be covered by that insurance, but what about the creation of new equity?

I have said a 20% loss in the paragraph above.  10% is because of the max 90% LTV on the new loan and the other 10% is assumed due to a loss in home value because of the down turned market.  In both cases the original lender eats it!  He is not even offered a portion of the shared appreciation/equity.

Appreciation Sharing

To Get subordinate Lien holders really excited so they will participate in the program, FHA has the authority to share with them the governments portion of any future appreciation in the value of the property.  (I think we need to read the details because this sounds like the Government owns the equity we just "created" and future equity.)  At settlement subordinate lien holder receive a Certificate that confirms their interest as an obligation backed by HUD.  Payment is conditional on the value of HUD's appreciation share.  Hocus Pokus!

This is the link to download the official and detailed guidelines.

Mortgagee Letter 2008-29 Hope for Homeowners Origination Guidance, download here




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