HUD's HOPE Program Showing Little Hope

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. HOPE seems to have little hope, with HUD saying last week that so far not a single bank has opted into the program.

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. But don't hold out much hope that HOPE will be accepted by your bank.