Many of you may have heard about the HOPE program but are confused about how, or even, if it works, so I've decided to put up a good article that should shed some light on the subject.


HOPE For Homeowners Refinance Program Off to Rocky Start
By Elizabeth Weintraub


Scores of upside-down home owners have been waiting since July for the HOPE for Homeowners program to kick off on October 1.

Well, the sad news is October 1st has come and gone and not one lender has stepped forward to fund the FHA refinances for these home owners. Oh, there are a slew of lenders eager to originate the loans, but none seem willing to fund them. A bunch of mortgage companies jumped on the bandwagon and are taking loan applications; however, until an investor or bank with resources agrees to lend on them, it's hardly worth filling out the paperwork.

My sources tell me that the retail operations of JPMorgan Chase might be ready to accept loan applications next year. But where does that leave homeowners today?
Perhaps the HOPE for Homeowners Program should be called the HOPELESS for Homeowners Program because no lenders appear willing to participate in the program. None of the Big Four lenders will fund the HOPE for Homeowners Program through FHA: not Citigroup, nor Wells Fargo, nor Countrywide nor Bank of America.

What is the HOPE for Homeowners Program?
The HOPE for Homeowners Program was signed into law by the Bush Administration on July 30, 2008, promising to refinance mortgages through FHA for struggling and upside-down borrowers who meet certain criteria. It began on October 1, 2008 and will end September 30, 2011. The problem is lenders aren't yet buying into it, which could make the legislation, while well intended, worthless.

At first blush, the program sounds feasible. A home owner facing foreclosure allegedly can refinance an existing mortgage into a new mortgage at 90% of the home's newly appraised value, providing the home owner qualifies and the existing lender agrees to participate.

How the HOPE for Homeowners FHA Refinance Program Works
Say, for example, homeowners purchased a home several years ago for $500,000. Today, that home is worth $300,000, which puts the home owner upside down by owing more than the home is worth.

FHA will then insure a new loan of 90% or $270,000, which would effectively drop the mortgage payment about in half. To make the program work, the existing lender(s) needs to waive late fees, prepayment penalties and agree to release the mortgages; however, the lender is not required to participate.

Which Lenders are Participating in the HOPE for Homeowners Program?
So far, none. FHA has published a list of H4H participating lenders on its web site; however, they are mostly small mortgage brokers. I called Cynthia Ruiz at American Security Financial, since her company is listed, and asked if she had investors for these FHA refinances.

Ms. Ruiz said, "No, but we are taking applications and will give priority to those." When does she expect the major players to step forward and fund these loans? Probably in February of 2009, she responded.

Does FHA Write the Loans?
FHA does not make loans. FHA inures loans. FHA loans are funded through conventional lenders, which are approved to participate in the FHA program. To date, none of the recognized FHA-approved lenders has stepped forward to participate in the HOPE for Homeowners program.

The nationwide FHA maximum mortgage amount varies from state to state, subject to county maximums. Here is your county's FHA mortgage limit.

Borrower Qualifications for HOPE for Homeowners Program
The eligibility requirements fit many upside-down homeowners. There is no credit score requirement.
The home must be a principal place of residence.
Home owners can't own any other property.
The existing mortgage payments must exceed 31% of the home owner's gross monthly income.
The home owner did not obtain the existing mortgage by falsifying loan documents.
The home owner has not been convicted of fraud within the past 10 years.
The home owner is struggling to meet the mortgage obligations and can no longer afford to pay on the mortgage.

The catch is -- and you knew there was a catch, right -- the home owner must agree to give some future appreciation to FHA and the existing lenders. During the first year, if the home owner sells, FHA and the previous lenders can collect 100% of the equity, which reduces on a sliding scale to 50% by the fifth year. However, for some, a little equity down the road sounds better than no equity now and / or having no place to live.

Fred Chamberlin, senior mortgage consultant at Alpine Mortgage Planning in Eugene, Oregon, says banks might decide to fund these loans because banks have their own money and don't always sell the loans to investors. "That is why I think that maybe Wells Fargo and Countrywide might participate," said Chamberlin, adding that FHA will not insure the loan if the borrower fails to make the first payment.
Will Banks Choose a Short Sale Over the HOPE for Homeowners Program?
Granted, in a short sale situation, the bank is also paying a real estate commission, but some critics believe a short sale might be more beneficial to the lender than participating in the HOPE for Homeowners Program.

A short sale buyer might offer the seller a higher sales price than 90% of an FHA appraisal, which could net the existing lender more money, even after the lender pays closing costs. However, short sales are voluntary and sellers won't always agree to do a short sale, especially if sellers are offered an affordable option to avoid foreclosure or a short sale.