HOPE for Homeowners Revamped

Homeowners seeking mortgage relief might want to look into the newly revamped HOPE for Homeowners mortgage insurance program administered by the Federal Housing Administration, part of the US Department of Housing and Urban Development.  The HOPE for Homeowner’s board of directors announced Wednesday, November 19, 2008 a set of new guidelines for the program to help homeowners dig out of their mortgage-related financial woes.

The new underwriting guidelines for the HOPE for Homeowners program were made possible by new powers granted to HUD in the Emergency Economic Stabilization Act of 2008.  The program began October 1, 2008, and will end September 30, 2011.

"Clearly, meaningful changes were needed,” HUD Secretary Steve Preston said in a press release.  “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.”

Highlights of the changes in the program include:

- Extension of the maximum term of loan repayment from 30 years up to 40 years.
- Raising the maximum loan-to-value ratio to 96.5%.

The program is designed to give lenders an incentive to re-write existing loans that may otherwise fall into foreclosure.  Lenders must be willing to accept a new loan at 90% of the current appraised value, which may lure some banks into writing loans in order to avoid the cost and time of a foreclosure.  Only mortgages written prior to January 1, 2008 are eligible for being recast under HOPE.  The homeowner must have made at least six payments on their existing loan, and either show a hardship in continuing to make those payments, or proof that they can no longer afford the payments.

There is a new twist to the HOPE for Homeowners scenario which most homeowners are probably not familiar with:  equity sharing.  When the property sells, the homeowner will share with the lender any appreciation in the property’s value.  This gives lenders another incentive to consider HOPE in lieu of foreclosure, with the potential for recapturing the write down they have to take when the loan is originated.

Only owner-occupied properties are eligible for the program, and applicants must meet FHA’s stringent standards for verifying their income, assets, and debts before the loan guarantee will be granted on the mortgage.  A homeowner who owns more than one residential property is not eligible for the program.  Homeowners will need to be prepared to pay the initial mortgage insurance premium of 3%.

Interested home owners should contact their current lender and inquire about applying for a new loan under the HOPE For Homeowners insurance program.  FHA does not grant mortgage loans directly.




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The rise of the 40 year mortgage

If you are looking for less risky loan products there is finally options for those who want lower payments.  The 40 year mortgage provides borrowers with an alternative to interest only and adjustable rate mortgages.  Borrowers were initially turned-off by the risk associated with an “interest-only” loans but are now starting to see the benefits: Lower payments, less money tied up in equity, more flexibility, etc.  The interest only loan can allow borrowers to use the monthly savings on other investments or financial goals. There are many borrowers though who plan on keeping their home for a long period of time and are uncomfortable with a loan product that has an adjustable rate.  Enter the 40-Year Fixed Rate Mortgage and the possibility of the 40-Year term on an adjustable mortgage for those not opposed to the exotic loan. 

With a 40 year mortgage often there are flexible underwriting guidelines. A 40-Year mortgage may also attract some borrowers who are interested but do not qualify for an interest-only loan, ARM, or exotic loans.

A 40 year mortgage is pretty much what it sounds like. Instead of stretching your loan over 30 years your lender stretches it over 40 years.  The monthly payments are lower due to the extended length of the loan.  You get a 40 year mortgage to help lower your payment and get more home for your money.  Fannie Mae has announced that they will buy these loans from lenders now so they are more abundant than they were just a year ago. 

Even with a higher rate you are paying less with a 40 year mortgage.  40 Year Mortgages may be attractive to those borrowers not comfortable with adjustable rate mortgages, interest only loans, or other exotic loans.  Borrowers that also have trouble qualifying for a risky loan may also find this 40 year mortgage attractive.  Generally the guidelines and requirements are little more flexible than exotic loans.