The Hope (Dashed) For Homeowners Program

| | Comments (1)

an email:

If you think it's worthwhile, how about an article that explains the HUD hope to homeowners program in plain(er) English. I don't consider myself terribly dumb, but I can't quite figure out who qualifies and who doesn't. One the one hand it sounds magic -- get new smaller loan! But it also sounds like your existing lienholders have to agree, which I can't imagine they'd be happy to do outside of very specific circumstances. Also, it sounds like if you do sell, you give a portion of the forgiven equity back to HUD (seems fair), but some of the things I've read seem to disagree on how much. Also one article I read "you need to not be able to pay your exiting mortgage without help". That seems very subjective. Is there an actual yardstick for that? Debt-to-income? Something else?

The program is effective from October 1, 2008 to September 30, 2011. However, it is about 99% political theater. It's not actually going to help a lot of people.

The HUD Hope for Homeowner's Program Page

Cost-Benefit Analysis

Lender considerations:

Given their fiduciary responsibilities and financial obligations, lenders will assess their portfolio and perform a cost-benefit analysis to determine the feasibility of offering this program to struggling homeowners.

1. Affordability versus value: lenders will take a loss on the difference between the existing obligations and the new loan, which is set at 96.5 percent of current appraised value. The lender may choose to provide homeowners with an affordable monthly mortgage payment through a loan modification rather than accepting the losses associated with declining property values.
2. Borrower eligibility: Lenders that determine the H4H program is a feasible and effective option for mitigating losses will assess the homeowner's eligibility for the program:

The existing mortgage was originated on or before January 1, 2008;
Existing mortgage payment(s) as of March 1, 2008 exceeds 31 percent of the borrowers gross monthly income;
The homeowner did not intentionally default, does not have an ownership interest in other residential real estate and has not been convicted of fraud in the last 10 years under Federal and state law; and
The homeowner did not provide materially false information (e.g., lied about income) to obtain the mortgage that is being refinanced into the H4H mortgage.

The first thing to note is that you cannot have "provided materially false information (e.g. lied about income)" in order to get your current loan.

Right off the bat, that eliminates everyone who did a stated income loan. There has never been a stated income loan where people could document their income to be at that level - if they had the documentation, they'd get the better rates for full documentation.

Now let's take a look at the other requirements

  • lenders will take a loss on the difference between the existing obligations and the new loan, which is set at 96.5 percent of current appraised value. The lender may choose to provide homeowners with an affordable monthly mortgage payment through a loan modification rather than accepting the losses associated with declining property values.
  • Existing mortgage payment(s) as of March 1, 2008 exceeds 31 percent of the borrowers gross monthly income;
  • The homeowner did not intentionally default, does not have an ownership interest in other residential real estate and has not been convicted of fraud in the last 10 years under Federal and state law;

So yes, it is debt to income ratio that determines affordability.

The lender has to write down principal of the loan to 96.5% loan to value ratio. This money is just gone. It explicitly states that Mortgage Loan Modification instead is the lender's choice. I can tell you: That's what they would rather choose. If they write down the principal, that money is gone, completely and irrevocably, without any possibility of recovery. Just as I wrote for the article on loan modification: they're not likely to agree to that. They agree to let you off the hook for money you borrowed and you still owe, and you have the opportunity to make a profit from it? Lenders don't do many principal write-downs on loan modification, and they're not going to agree to them for Hope for Homeowner's, either. Unless you're suffering one of the "killer Ds": Death of primary breadwinner, Disability of primary breadwinner, or Divorce, the chances are better of flying to the moon by flapping your arms. The only difference between a principal write-down on loan modification (than one in sixty chance, as explained in the article on loan modification) and "Hope for Homeowners" is that the government can make money, too. Quite frankly, in their shoes, I'd rather give it to the homeowner alone. At least that doesn't furnish a bureaucracy that wants to make itself permanent. When I originally checked, only 7 percent of borrowers had loans with lenders who were participating at all. That percentage may have gone up, but that doesn't mean they'll write down principal for you.

The lender will disclose to the homeowner the benefits of the program:
  • Home retention,
  • New affordable mortgage based on current appraised value,
  • 3.5 percent equity

The lender will also disclose to the homeowner the costs of the program:


  • 3 percent upfront mortgage insurance premium and a 1.5 percent annual premium,

  • Equity and appreciation sharing with the Federal government, and

  • Prohibition against new junior liens against the property unless they are directly related to property maintenance

The second group is more important. After the lender gives up all that money, the federal government gets paid for insuring the new loan? And either the lenders have to give up the 3% extra or people basically have to come up with cash in order to make this happen? If people had the cash, how likely is it they would be delinquent on their mortgage? Where is someone who tried for months to keep their loan current and is giving up because their finances are exhausted going to get 3% cash? Most of them didn't have 3% cash when they bought the property! And you're going to try to convince them to come up with 3% cash rather than walk away? Good luck with that.

Negotiations Between Borrowers and Lien Holders

If the lender refinancing the loan does not hold the senior mortgage lien, it will need to secure an agreement from the existing lien holder to waive all prepayment penalties and default fees on the existing loan and accept the loan proceeds from the H4H loan as payment in full. The loan amount (including the 3 percent UFMIP) for the new H4H loan cannot exceed 96.5 percent of the current appraised value of the property.

The lender will engage existing subordinate mortgage lien holders to extinguish all subordinate liens on the subject property. To entice subordinate lien holders to participate in the negotiation process and release their liens, FHA has the authority to share its future appreciation entitlement with them.

So they get back a portion of what they give up, while the federal government gets a share. Let me see: Would you like to give me $100 if the federal government promised to give you $50 back? Would that strike you as a wise bargain to make voluntarily? Didn't think so. The feds couldn't make it mandatory, lest they fall afoul of the Fifth Amendment, but how many lenders are going to voluntarily agree to this when there are other options available (i.e. loan modification)?

Step 3: Originating an H4H Mortgage

Nothing worth commenting upon.

Upon sale of the property, the homeowner will use their sale proceeds to pay off the H4H mortgage as well as the shared equity and shared appreciation mortgages.

FHA will provide instructions to the settlement agents regarding subordinate lien holders who are entitled to a portion of any appreciation. The lien holder that previously held the highest priority will receive payment up to the full dollar amount of its interest, not to exceed the amount of available appreciation, and so on, until all prior lien holders are satisfied or the amount of available appreciation is exhausted. All remaining appreciation is remitted to FHA.

In instances where the homeowner failed to make the first payment on their new H4H mortgage, the H4H statute prevents FHA from paying claim benefits to anyone holding the mortgage.

And in the meantime, these subordinate lenders receive no interest, have no claim upon the property, and may have to watch you take out subordinate liens on the property? And this is superior to going through foreclosure immediately for them how? Plus going through foreclosure makes it an involuntary loss versus a voluntary one, having implications with shareholders, taxes, etcetera.

Another HUD page here gives no further additional useful information, but a lot of political spin, even if you follow all the links.

Don't waste your time waiting for Hope for Homeowners to help you. Unless your family has had Death, Disability or Divorce happen to it, it's not going to help, and it also lets lenders who lied to you to get you to sign up for a loan off the hook. Normal loan modification has a discovery process that can force lenders who committed unethical actions to agree to better modifications than you are likely to get through Hope for Homeowners. And When Loan Modification Will Not Help, or Is Not Appropriate, neither will Hope for Homeowners.

Caveat Emptor

Categories

Delicious Bookmark this on Delicious StumbleUpon Toolbar Stumble It!

1 Comments

Words from a Very Outspoken and Opinionated California Litigation Attorney

Here in California, our Department of Real Estate website (dub dub dub dot dre dot gov) lists the companies that have DRE "permission" to modify loans... add to this list any licensed California attorney, and that is where you should begin your due diligence search when you seek help in California. Other states probably have similar laws, so check with your own state DRE and state bar.

My law firm has been getting more and more calls recently from homeowners that were victims of predatory lenders who put them into an unaffordable loan and now fell into the hands of those same people who sold the toxic loans but profess to be saviors... DON’T BE A VICTIM TWICE! What’s that they say, “Fool me once, shame on you, but fool me twice, and I’ll sue your butt!”

Do your homework and THOROUGHLY investigate any firm before hiring them to save your biggest asset and the place you call “home.” Scammers are popping up like dandelions on a freshly mowed lawn in April. They advertise on the Internet, freeway billboards, radio, television, and print media everywhere, not to mention spamming your email box with those third-world widows needing someone to receive three million dollars for them. Make no mistake, in many cases, these “loan modification experts” are the exact same loan officers and mortgage brokers who fleeced homeowners the first time around. After losing their jobs with the crash of the mortgage industry, they have found a new way to make ill-gotten profits from hard-working homeowners through loan modifications.

In California, with very few exceptions (and attorneys are one exception… no coincidence there… attorneys make the laws), it is against the law for anyone to take money up front for helping a homeowner who is in default. Don’t trust a company that begins its relationship with you by breaking the law.

HERE’S THE BOTTOM LINE!

Hire an attorney – and not just any attorney either - one with experience in mortgage law, not just one with real estate law experience but one with experience in both FEDERAL and STATE litigation against mortgage companies, one who doesn’t also do family law, criminal law, admiralty law, and immigration law as well, one who limits the practice to mortgage law (or at least a great majority of it), one who has the experienced staff, training, and know how to take on the big lenders and their top notch lawyers (lenders have attorneys – and darn good ones – check out their counsel on the web – big names top schools, shouldn’t you have a lawyer too?).

We are not talking about a refund on your broken television here, we are talking about hundreds of thousands of dollars and your HOME – if you don’t think this is the time to hire a highly educated and experienced professional instead of a weekend schooled, almost out of work, broker slash loan officer slash “expensive water in a wine bottle with alleged magical curative powers” salesperson, I don’t know what would make you take things seriously.

Of course, this is one obnoxious lawyer's totally biased opinion, but one based on many many distressing calls to my office every day. And, yes, my firm loves taking cases against loan modification companies who have violated laws. This field is quickly becoming one of the fastest growing sections for our mortgage law firm.

- Paul J. Molinaro, Esq.

DM: This seems a bit more like a commercial than I usually tolerate, especially posted twice, but I'll let it stand while stating that the majority of the scams I've had email about from consumers were run by lawyers who wrote the contract for services for their advantage, not the clients. Cost clients thousands to tens of thousands to no beneficial result.

I advise arrangements for referrals from ongoing, ethical mortgage firms who have to deal with the consequences, and have the resources to investigate the legal firms and check on their ratio of results and terminate the arrangement if there is a lower than acceptable success ratio. Because bottom line, it's really tough to sue lawyers, and it's even worse if you're broke. The lawyer can't sue the mortgage company for not referring any more business, and wants to perform for the mortgage company clients to keep that relationship. But for crying out loud, do not go back to the firm that did your toxic mortgage in the first place. Ask your friends for the names of companies that were trying to talk people out of negative amortization loans or short term hybrid ARMs.

Anyone who advertises 100% success ratio is a crook and a liar. Acceptable is anywhere from fifty to ninety percent. Look for capped fees, lesser fees if unsuccessful in obtaining a modification, and benefit measurements as to whether they get the full possible amount (for instance, the firm my company has selected has a fee cap for modifications, of which $X is earned upon acceptance of the case, another $Y upon a successful modification agreement, and if the modification will not benefit the client by $Z within two years, then $W gets refunded to the client)

Please be civil. Avoid profanity - I will delete the vast majority of it, usually by deleting the entire comment. To avoid comment spam, a comments account is required. They are freely available, and you can post comments immediately. Alternatively, you may use your Type Key registration, or sign up for one (They work at most Movable Type sites) All comments made are licensed to the site, but the fact that a comment has been allowed to remain should not be taken as an endorsement from me or the site. There is no point in attempting to foster discussion if only my own viewpoint is to be permitted. If you believe you see something damaging to you or some third party, I will most likely delete it upon request.
Logical failures (straw man, ad hominem, red herring, etcetera) will be pointed out - and I hope you'll point out any such errors I make as well. If there's something you don't understand, ask.
Nonetheless, the idea of comments should be constructive. Aim them at the issue, not the individual. Consider it a challenge to make your criticism constructive. Try to be respectful. Those who make a habit of trollish behavior will be banned.

Leave a comment

Copyright 2005-2024 Dan Melson All Rights Reserved

Search my sites or the web!
 
Web www.searchlightcrusade.net
www.danmelson.com


The Book on Mortgages Everyone Should Have
What Consumers Need To Know About Mortgages
What Consumers Need To Know About Mortgages Cover

The Book on Buying Real Estate Everyone Should Have
What Consumers Need To Know About Buying Real Estate
What Consumers Need To Know About Buying Real Estate Cover

Buy My Science Fiction and Fantasy Novels!
Dan Melson Amazon Author Page
Dan Melson Author Page Books2Read

Links to free samples here

The Man From Empire
Man From Empire Cover
Man From Empire Books2Read link

A Guardian From Earth
Guardian From Earth Cover
Guardian From Earth Books2Read link

Empire and Earth
Empire and Earth Cover
Empire and Earth Books2Read link

Working The Trenches
Working The Trenches Cover
Working the Trenches Books2Read link

Rediscovery 4 novel set
Rediscovery set cover
Rediscovery 4 novel set Books2Read link

Preparing The Ground
Preparing the Ground Cover
Preparing the Ground Books2Read link

Building the People
Building the People Cover
Building the People Books2Read link
Setting The Board

Setting The Board Cover

Setting The Board Books2Read link



Moving The Pieces

Moving The Pieces Cover
Moving The Pieces Books2Read link

The Invention of Motherhood
Invention of Motherhood Cover
Invention of Motherhood Books2Read link



The Price of Power
Price of Power Cover
Price of Power Books2Read link

The End Of Childhood
End Of Childhood cover
The End of Childhood Books2Read link

The Fountains of Aescalon
Fountains of Aescalon Cover
The Fountains of Aescalon Books2Read link



The Monad Trap
Monad Trap Cover
The Monad Trap Books2Read link

The Gates To Faerie
Gates To Faerie cover
The Gates To Faerie Books2Read link

Gifts Of The Mother
Gifts Of The Mother cover
Gifts Of The Mother Books2Read link
**********


C'mon! I need to pay for this website! If you want to buy or sell Real Estate in San Diego County, or get a loan anywhere in California, contact me! I cover San Diego County in person and all of California via internet, phone, fax, and overnight mail. If you want a loan or need a real estate agent
Professional Contact Information

Questions regarding this website:
Contact me!
dm (at) searchlight crusade (dot) net

(Eliminate the spaces and change parentheticals to the symbols, of course)

Essay Requests

Yes, I do topic requests and questions!

If you don't see an answer to your question, please consider asking me via email. I'll bet money you're not the only one who wants to know!

Requests for reprint rights, same email: dm (at) searchlight crusade (dot) net!
-----------------
Learn something that will save you money?
Want to motivate me to write more articles?
Just want to say "Thank You"?

Aggregators

Add this site to Technorati Favorites
Blogroll Me!
Subscribe with Bloglines



Powered by FeedBlitz


Most Recent Posts
Subscribe to Searchlight Crusade
http://www.wikio.com

About this Entry

This page contains a single entry by Dan Melson published on December 23, 2008 7:00 AM.

Links and Minifeatures 2008 12 22 Monday was the previous entry in this blog.

Regulators Toughen Negative Amortization Loans? is the next entry in this blog.

Find recent content on the main index or look in the archives to find all content.

-----------------
Advertisement
-----------------

My Links