Information about HOPE for Homeowners
The HOPE for Homeowners (4H4) program was created by Congress to help those in risk of default and foreclosure to refinance their loans into more affordable loans they can make payments on. The Hope for Homeowners program was introduced by the George W. Bush administration and remains in effect. 4H4 is a government sponsored mortgage option designed to help borrowers stay in their homes.
The program is effective from October 1, 2008 to
September 30, 2011
Homeowners are advised to contact their existing or new lender to discuss qualifying for the 4H4 program
Here is how the program works
There are four ways that a distressed homeowner can try to participate in the HOPE for Homeowners program:
1. You can contact your existing lender and/or contact a new
lender to discuss how to qualify and review your eligibility.
2. Your loan servicing company may recommend you avoid
foreclosure by refinancing into a HOPE for Homeowners
loan.
3. Your lender or a potential lender may contact you to
refinance your loan to a more affordable loan with a HOPE
for Homeowners loan.
4. You may work with a Counselor that assists homeowners
to reach a mutually agreeable solution with your lender to
avoid foreclosure by refinancing into a HOPE for
Homeowners loan.
Lender considerations
Under the H4H program, lenders can loan up to 96.5% of the current appraised value of your home. Therefore, lenders are faced with taking a loss on the difference between your existing loan and the new loan. The lender may decide to modify your loan by giving you more years to pay off the loan and/or by lowering your interest payment rather than provide refinancing through the H4H program. If the lender determines the H4H program is a feasible option for their business to consider, they will assess your eligibility as a borrower.
Borrower eligibility
· Your existing mortgage was originated on or before
January 1, 2008.
· Your existing mortgage payment(s) as of March 1, 2008
exceed 31 percent of your gross monthly income for fixed
rate mortgages; For ARMs, existing mortgage payment(s)
exceed 31 percent of your gross monthly income as of
March 1, 2008 or the date of your new loan application.
· You did not intentionally default on your mortgage, you do not own any other residential real estate and you have not been convicted of fraud in the last 10 years under Federal and state law, and
· You did not provide materially false information (e.g., lied
about income) to obtain the mortgage you are going to
refinance into a H4H mortgage.
· You must have the financial capacity to pay the new loan
in a timely manner.
Homeowner considerations
Homeowner benefits include retaining your home, a new affordable mortgage at the current appraised value of the property and a portion of the future growth in value of your property.
Loans made under the FHA’s HOPE for Homeowners Program have some special restrictions.
· You must share equity and future appreciation in the
property. You must agree to share any initial equity
created when you refinance through H4H and any future
increase in the value of your home (appreciation) with FHA
(Federal Housing Authority). Initial equity is the difference
between the appraised value of the home at the time of
the new H4H loan, or the total debt you owe on your home
if that is less, and the original balance on your
mortgage. (See Equity and Appreciation Sharing
Requirements below)
· You cannot take out a second mortgage, home equity loan, or home equity line of credit for the first five years you have your new loan, except under certain circumstances for emergency repairs.
· You will pay an upfront mortgage insurance premium of 3% and a 1.5% annual mortgage insurance premium on the current principal balance of the new mortgage. The annual premium will be included in your monthly payments. If you refinance your home through this program you will not owe any payments, fees, penalties or other debt on your existing mortgage(s).
Equity and appreciation sharing requirements
You will share the newly created equity with FHA, if you sell or refinance your home.
· During year 1, 100% of the initial equity is paid to FHA
· During year 2, 90% of the initial equity is paid to FHA
· During year 3, 80% of the initial equity is paid to FHA
· During year 4, 70% of the initial equity is paid to FHA
· During year 5, 60% of the initial equity is paid to FHA
· After year 5, 50% of the initial equity is paid to FHA
· When you sell your home, you will also share with FHA one half (50%) of any appreciation created since the time you took out this loan.
If your H4H lender doesn’t hold your mortgage now
If the lender refinancing your loan does not own your current mortgage, the new lender will need get the existing mortgage holder to waive any prepayment penalties and default fees on the existing loan and accept the loan proceeds from the H4H loan as full payment. If you have home equity loan or line of credit, the new lender will also need those lien holders to accept their portion of the H4H loan payment as full payment. To entice subordinate lien holders to participate in the negotiation process and release their liens, FHA can choose to share its future appreciation entitlement with them or offer an upfront payment option.
An H4H Mortgage
In addition to the typical security instrument and note for the first mortgage, a shared equity note and mortgage (SEM) and a shared appreciation note and mortgage (SAM) will be recorded. These mortgages will be serviced by FHA. The lender will also submit the new mortgage for insurance to FHA, certifying that it has been originated within the H4H program guidelines.
Upon sale of the property, you, 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 at settlement 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 paid to FHA.
If the homeowner should fail to make the first payment on the new H4H mortgage, the H4H statute prevents FHA from paying insurance claim benefits to anyone holding the mortgage.