Mortgage Advice Corner


Homeowners Who May be at Risk of Default and Foreclosure



Homeowners who are delinquent on their mortgage and facing foreclosure may qualify for a loan workout option. The first step is to contact your lender and explore loan workout solutions.



Temporary problem

– Homeowners experiencing a temporary financial problem should call their lender to discuss these possibilities:

Forbearance: Lenders may allow homeowners to reduce or suspend payments for a short period of time and then agree to another option to bring the mortgage current. A forbearance option is often combined with a reinstatement when the homeowner knows he will have enough money to bring the mortgage current at a specific time.

Repayment plan: Lenders may agree to let homeowners resume making regular monthly mortgage payments, plus a portion of the past due payments each month until caught up.

Reinstatement: Lenders are always willing to discuss accepting the total amount owed in a lump sum by a specific date.



A long-term problem

that will permanently affect the homeowner’s ability to bring the mortgage current – Homeowners should call their lenders to discuss these options:

Mortgage modification: If the homeowner can make payments on the mortgage, but don't have enough money to bring the account current or can't afford the current payment, lenders may be willing to change the terms of the original mortgage loan to make the payments more affordable.

The mortgage could be permanently changed in one or more of the following ways:

Whatever the situation may be, if a homeowner is at risk of default and facing foreclosure on his mortgage, it’s always best to contact the lender.




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Mortgage Refinance - HOPE for Homeowners

Your Guide to the FHA - HOPE for Homeowners (H4H) Program



What is the HOPE for Homeowners (H4H) program


The HOPE for Homeowners (H4H) program, which was created by Congress and passed in July 2008, is designed to help homeowners at risk of default and foreclosure on their mortgage refinance into more affordable, sustainable mortgage loans.

The HOPE for Homeowners (H4H) program is effective from October 1, 2008 to September 30, 2011.

HOPE for Homeowners is an additional mortgage option designed to keep borrowers in their homes. HOPE for Homeowners program is expected to help as many as 400,000 homeowners avoid foreclosure over the next three years.

If a homeowner is having trouble making his mortgage payments, is at risk of default or foreclosure, HOPE for Homeowners may be able to help, by refinancing your mortgage loan into a new 30-year fixed rate mortgage loan with lower interest rates and lower payments. Uses the Refinance Calculator to estimate your potential savings from refinancing.

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Voluntary Lender Participation


Participation by lenders, as well as homeowners, in the HOPE for Homeowners is voluntary and is intended to offer lenders an alternative to foreclosing on borrowers. Lenders will be encouraged to write-down the outstanding mortgage principal balances to 90 percent of the new value of the property. This means lenders will incur significant losses on mortgages refinanced into H4H mortgages given the dramatic decline in home values over the past few years.



Market Stability and Liquidity


By continuing to slow the rate of foreclosures, this HOPE for Homeowners program will presumably support FHA's existing efforts to stabilize local housing markets. FHA will insure up to $300 billion in new loans.



How the Program Works


A distressed homeowner or a homeowner at risk of default and foreclosure on their mortgage could pursue participation in the HOPE for Homeowners program in one of four ways. Participation by the lender and borrower is voluntary; both lender and homeowner must agree to participate.



1. Homeowners may contact their existing mortgage lender or a new lender to discuss how to qualify and their eligibility for this program.

2. Loan Servicing Companies, working with troubled homeowners, may determine that the best solution for avoiding foreclosure is to refinance the homeowner into a HOPE for Homeowners mortgage loan.

3. Originating lenders, who are looking for ways to refinance potential customers out from under their high- interest rate mortgage loans and who are willing to work with servicers to assist distressed homeowners, can refinance the homeowner into a HOPE for Homeowners mortgage loan.

4. Counselors who are working with distressed homeowners and their mortgage lenders to reach a mutually agreeable solution for avoiding foreclosure.



Borrower Eligibility


If a lender determines the Hope for Homeowners H4H program is a feasible and effective option for mitigating a borrower’s losses, the lender will assess the homeowner’s eligibility for the program.

Under the Hope for Homeowners H4H program, only owner-occupants are allowed. The home must be your primary residence, and you have no ownership interest in any other residential property, such as a second home. What this means is that investors are excluded.

Borrowers must also meet the following eligibility criteria:

  • The existing mortgage was originated on or before January 1, 2008;
  • Existing mortgage payment(s) exceeds 31 percent of the borrowers gross monthly income;
  • The homeowner cannot afford their current loan payments;
  • The homeowner did not intentionally default, and has not been convicted of fraud in the last 10 years under Federal and state law; and
  • The homeowner did not provide materially false information to obtain the mortgage that is being refinanced into the H4H mortgage.

Costs to Homeowners


The lender will disclose to homeowners the benefits of the program. Some of the benefits to the homeowners are:

  • Home retention,
  • New affordable mortgage based on current appraised value,
  • Waving of prepayment penalty on current mortgage, and
  • A 10 percent equity in their home.

Separate from these benefits, there are costs to the homeowner, some immediate in the form of fees, others occurring later in the form of sharing in the appreciated value when the home is sold or refinanced. The lender will also disclose to the homeowner the costs of the program:

  • 3 percent upfront mortgage insurance premium and a 1.5 percent annual premium. In addition to an upfront mortgage insurance payment of 3%, homeowners will pay a 1.5% annual mortgage insurance premium on their outstanding mortgage balance. This premium will be included in the monthly mortgage payments.
  • Equity and appreciation sharing with the Federal government. Homeowners must agree to share both the equity created at the beginning of this new mortgage and a portion of any future appreciation in the value of your home, based on a complicated sliding formula.
  • Prohibition against new junior liens against the property unless they are directly related to property maintenance. Homeowners cannot take out a second mortgage for the first five years of the loan, except under certain circumstances for emergency repairs.

Outlook HOPE for Homeowners Program

The HOPE for Homeowners (H4H) program has many well intentioned but lofty goals. Whether it can achieve these goals is questionable. For starters, lenders will be required to incur significant losses on mortgages refinanced into H4H mortgages, while homeowners will be sharing future home appreciation with the government. Some observers have noted the HOPE for Homeowners program is voluntary, and are pessimistic the program can achieve its stated goals.

Homeowners must understand that once that new H4H loan is in place, when the home is sold or refinanced again, homeowners must share any appreciation (i.e., “profit”) with the government, based on a complicated sliding scale.

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