Thursday, November 20, 2008

HUD Relaxes Hope for Homeowners Requirements

(Housing Wire) With fewer than 100 applications for FHA loans through Hope for Homeowners since the program’s effective start date of Oct. 1, it was clear some “meaningful changes” were needed. The U.S. Housing and Urban Development secretary Steve Preston on Wednesday announced that the Hope for Homeowners (H4H) Board of Directors has approved changes to the program to help more distressed borrowers refinance into affordable, government-back mortgages.

“Clearly, meaningful changes were needed,” Preston said. “These modifications should increase lender participation and help more families who are having difficulty paying their existing mortgages, but can afford a new affordable loan insured by HUD’s Federal Housing Administration.”

The changes include increasing the loan to value ratio (LTV) from 90 to 96.5 percent for some H4H loans; for borrowers whose mortgage payments represent no more than 31 percent of their monthly gross income and household debt no more than 43 percent. Raising the LTV ratio reduces the gap between the existing loan balances and the new H4H loan and decrease losses to the existing primary lienholders, according to a HUD press release regarding the announcement.

Another change to the program involves simplifying the process to remove subordinate liens by permitting upfront payments to lienholders in exchange for releasing their liens, to permit more borrowers access to the program. Previously, subordinate lienholders who released their liens were only eligible to receive a small recovery payment when the home owned by the H4H borrower was sold, creating a substantial delay and not necessarily guaranteeing any return for subordinate lienholders.

The last change will allow lenders to extend mortgage terms from 30 to 40 years, possibly reducing borrowers’ monthly payments enough to make it possible for them to qualify for the plan and save their homes.

“These changes will further encourage lenders to take a hard look at this program before heading down the path to foreclosure and will provide families with another resource to refinance into a loan they can afford,” said FHA commissioner Brian Montgomery.

Despite more lenient terms, the H4H program will continue to uphold FHA’s requirement that new loans be based on a family’s long-term ability to repay the mortgage, according the announcement, which has already brought sweeping industry support.

“Expanding the eligibility criteria and making the program less expensive for both the borrower and the lenders will allow us help more borrowers,” said John Courson, COO of the Mortgage Bankers Association, in a media statement Wednesday. “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.”

HOPE NOW, the private sector alliance of mortgage industry professionals, on Thursday said that it strongly supported the changes in the H4H program because they will make it easier for homeowners to participate and keep homeowners in their homes.

“These changes, including increasing the loan to value ratio, extending the term to 40 years, and allowing for upfront payments to subordinate lien holders, are all improvements which should make the program more accessible and attractive,” said Robert Davis of the American Bankers Association. “The Hope for Homeowners program is very new, and is still evolving. Both HUD and the Congress, which authorized these changes, are to be commended for acting quickly to address borrower and industry concerns and to make these improvements to the program in such a timely manner.”


Anonymous said...

I'm a housing counselor at a non-profit and we get calls hourly about this program. The lenders don't know anything about it and come to us, we don't know enough about it and direct people to the FHA, the FHA tells people to contact their's a never ending, confusing circle. It baffles me that only 100 applications have been submitted. I personally have talked to 100 people in the past 2 weeks that have wanted to apply but DON'T KNOW HOW. Herein lies the problem of the program...BE MORE SPECIFIC. Spell it out for people exactly how to apply. Which brings me to another point: has anyone even participated in the program??? Or is it just a farce?

Cormick Grimshaw said...

I have talked to some of the servicers who would entertain H4H modifications, but they're pure servicers - i.e., they don't do mortgage originations. Hence, the borrowers they service must first go to a lender who is offering H4H loans, tentatively wrap that up, and go to their current servicer and pitch the idea to them. This is obviously way too convoluted for many of the people who this was designed to help.