Track the Stimulus

The Hope for Homeowners (H4H) was approved under the Bush administration to help homeowners that were currently underwater (the owed more in their mortgages than what the current value of their homes) and that had trouble paying their mortgages refinance under better terms that allowed them to maintain some equity in their homes.  The Obama administration has decided to incorporate the Hope for Homeowners (H4H) program under the tent of the Homeowner Affordability and Stability Plan aka Making Home Affordable initiative, and provide servicers, creditors and borrowers similar incentives than under that plan (see the "Housing Plan" page). 

The Hope for Homeowners program calls for first mortgages to be modified so that the new mortgage would be equal to at most 96.5% of the current value of the home at a 30 to 40 year fixed rate.  In addition any second lien would be extinguished.  First mortgage creditors would benefit if the foreclosing on the home is a more expensive option than the loan modification.  To make the modification palatable to second lien creditors, the program calls for any resulting equity from the eventual sale of the home (built through either the borrower's payments and/or price appreciation of the home) to be divided among the creditors, the FHA (Federal Housing Authority, which manages the program) and the homeowner.  At the time in which it was created, September 2008, the government anticipated that approximately 400,000 homeowners would benefit from the program.

Who qualifies? 

• People with mortgages origination on or before January 1, 2008;
  
• Homeowners whose mortgage payment (including taxes, insurance, and homeowners/condo fees) exceeds 31% of their gross income (their income before deductions);
  
• Homeowners who do not have an ownership interest in other real-estate properties;
• Homeowners who have not intentionally defaulted on their mortgages;
• Homeowners who have not been found guilty of fraud during the last 10 years either in Federal or State court;
• Homeowners that have not lied on the application for the loan that will be modified under the H4H program (e.g. lied about income, occupation, etc.)
• Total loan amount is $550,440 for one unit properties, $704,682 for two-units, $851,796 for three-units, and $1,058,574 for four-units.

What do they get? 

• A new mortgage loan that leaves a 3.5% equity in the house based on the current appraised value;
• Lower monthly payments;
• Incentive payments; and perhaps most importantly
• Keep their primary residence.
  

What do homeowners that qualify pay? 

• A 3% upfront homeowner insurance premium, and a 1.5% annual insurance premium after that;
• Equity and appreciation of the home is shared with FHA;
• New junior liens on the property are prohibited unless the loan is directly related to property maintenance.

How does it work? 

• Servicers working under the Homeowner Affordability and Stability Plan will have to evaluate whether homeowners eligible for the Mortgage Modification plan are also eligible for the Hope for Homeowners program;
  
• Lenders/servicers will ask for proof of income and residence from the homeowner to ascertain whether the individual meets the plan's requirements;
• Prepayment penalties, late fees or other default charges are eliminated;
• First mortgage lender agrees to accept the proceeds of the new loan as payment in full;
• New loan will not exceed 96.5% of the appraised value of the property including payment of insurance, or points if they are capitalized under the loan;
• Second lien holders will have to agree to extinguish their existing claims in exchange they will receive an upfront payment (estimated under FHA rules by the modifying lender), or a share of the equity on the home once it is sold;
  
• Borrower will agree to share the existing equity in the home and any future equity with the FHA:
• If property is sold during the first year, all the equity goes to the FHA;
• If property is sold during the second year, 90% of the equity goes to the FHA;
• If property is sold during the third year, 80% the equity goes to the FHA;
• If property is sold during the fourth year, 70% the equity goes to the FHA;
• If property is sold during the fifth year, 60% the equity goes to the FHA;
• If property is sold during after the fifth year, 50% the equity goes to the FHA;
• Any equity coming from the appreciation of the house is split 50%-50% between the FHA and the homeowner.
  

How does the Treasury support the program? 
If the new H4H follows the same guidelines as for the mortgage modification program established under the Home Affordability and Stability Plan, then

• Services will receive up to $5,500 in incentives to modify these loans: $2,500 up-front and $1,000 per year for three years, if the borrower stays current;
  
• Mortgage holders receive $1,500 and servicers $1,500 if they modify a loan before it goes into default;
• Borrowers that stay current on their loans after being modified will receive $1,000 per year for up to the five years to be applied against the principal on their loans.

Anything else? 

• Lender will be able to package the loans as Gimmie Mae loans - the Treasury and/or the other GSEs will be purchasing these loans to guarantee the liquidity of this market and attract new lenders.
• The government is working to make modification to the H4H program to streghten the program.
  

NOTE: Just to be clear - we are NOT a government sponsored site, and we try to keep the information on the site accurate and up-to-date.  Nevertheless, there may be errors, and you should check the information on qualifications and other details for the plans with your mortgage agent.  More information on the Hope for Homeowners program is found at: http://portal.hud.gov/portal/page?_pageid=73,7601299&_dad=portal&_schema=PORTAL.