FHA Hope For California Homeowners Loan Program

The FHA Hope for Homeowners loan program was released this month. The stated goal of the plan is to help homeowners, who are paying mortgages that are significantly more expensive than when they bought the home (due to rate adjustments), get a home loan they can afford.

Key components of the FHA Hope For Homeowners loan program are not limited to but include:

• An appraisal will be performed and the maximum loan amount will be 90% of that appraised value. All subordinate liens will be extinguished and the exiting lienholder will have to agree to a loss of principal.
• The current housing payment must be more than 31% of the homeowner’s gross monthly income.
• The homeowner must not have misrepresented his/her income on the original loan application.
• The homeowner must get a new 30-year fixed rate loan and qualify based upon documented income.
• The homeowner must agree to an declining equity sharing agreement (for the existing equity), with the FHA, for a specified period of time.
• The homeowner will share in future appreciation with the FHA.
• The program is completely voluntary; existing lienholders don’t have to participate.

Mary Miller compiled some comments from Mortgages Unzipped authors which demonstrates the difficulty of the program. Loan originators may be hesitant to work with you because of the low probability of a successful funding. That low probability is due to the fact that existing lienholders may have to take significant writedowns. I wouldn’t blame an originator who refuses to participate in the FHA Hope For Homeowners Program; loan originators aren’t paid on unsuccessful fundings.

Nonetheless, we welcome loan applications, under the FHA Hope for Homeowners, for Californians in “upside-down mortgages”. We recently hired a team member with the skill set to work with lenders’ loss mitigation departments. That specific expertise, combined with our long history as a HUD lender, leads us to believe that we can assist folks who desperately want to retain their California home. We offer this program with a few conditions:

• We must determine your maximum qualified loan through full income documentation at application. If you can qualify for a loan amount that might be a reasonable offer to the existing lienholder, we’ll proceed to an appraisal.
• You must pay for the appraisal and credit report upfront; that should be about $500. The appraised valuation is a key component of the program so that valuation must be established prior to the offer to the existing lienholder.
• We expect to earn a 2% fee, whether paid by you or the new lender ( through yield spread premium). That’s twice the amount we earn for new loan originations. We think this higher fee is reasonable considering the amount of work required and the low probability of loan funding. We only receive this fee if we are successful in funding your new loan.

The FHA Hope for Homeowners Loan program offers Californians a chance to stay in their homes at a reasonable price. If your intention is to live in your home for 5-10 years, this may be a workable solution for you.

While the plan isn’t perfect we know that certain sub-prime lenders have sold their loans at a significant discount and will welcome any and all offers that allow them to make a profit. For example, if you have a loan with First Franklin, this program might make sense for you. First Franklin was purchased by Merrill Lynch, in early 2007. Merrill Lynch sold these loans, for 33 cents on the dollar, this past summer. What that means is that they sold your $500,000 loan to an investor for $165,000. If we have to approach First Franklin’s loss mitigation department with a $350,000 payoff for that $500,000 loan, the new investor stands to more than double his money in a few months. That’s a reasonable proposition to entertain.

Not all loan servicers will be that cooperative, though. We believe that our connections with Wall Street and secondary mortgage market investors will be a distinct advantage to you, the beleaguered California homeowner. The FHA Hope for Homeowners Loan program isn’t perfect but it may offer you significant relief. Please contact me if you have questions about it.

Originally posted on Mortgages Unzipped