The Federal Housing Administration has recently adopted a new program, Hope For Homeowners, “H4H”, to help homeowners facing difficulty in paying their home mortgages. The program became effective October 1, 2008 and it will end on September 30, 2011.
To qualify, borrowers must meet the following minimum requirements:
• Have made at least six full payments during the life of the existing senior
home loans
• Must reside in the property
• Cannot have been convicted of fraud
• Borrowers must not have knowingly or willfully provided material false
information to obtain the existing home loans.
• The borrower’s monthly payments on the current home loans must be greater
than 31 percent of the borrower’s gross monthly income.
Additionally, the existing loan being refinanced must have been taken out prior to January 1, 2008. The amount of the new H4H loan cannot exceed 90 percent of the current value of the property. This means that if the current loan exceeds 90 percent of the value of the property, the current lender will have to accept less than it is owed.
Perhaps the biggest hurdle for any borrower to overcome is the requirement that all existing lien holders waive all rights to collect the debt. This means that if there is a second loan and lien on the house, the lender of the second loan has to agree to take nothing if the value of the property is less than the first loan balance. The new loan only provides at a maximum 90 percent of the current value of the property. The H4H has some incentives to accomplish this, such as offering the second lien holder share of the future appreciation in exchange for release for the existing lien.
Under the H4H program, the borrower is required to enter into an “Equity Share Agreement” with the government. At the time of close of escrow, the government would share in the equity at that time. Since the new loan would be for no more than 90 percent of the value, there would be 10 percent equity at the close of escrow. Then, the government would also share on the future “appreciation.”
Like other financial transaction of such a significant value and impact, borrowers should carefully review all documents before signing and seek advice of a trusted advisor regarding these matters before executing legal documents.
For a free initial consultation regarding these and other related issues, please contact attorney and financial counselor, Susana B. Tolchard at 661-287-9986.