Skip to main content

FNC survey: Most U.S. lenders ready to comply with HVCC

Apr 01, 2009

HOPE for Homeowners: Is there an opportunity for you?Jeff MifsudFHA, eligibility, Mortgagee Letter 2008-29, UFMIP, mortgage insurance Many loan officers are asking themselves whether or not there is an opportunity to make money with the HOPE for Homeowners (H4H) program. After much analysis, my opinion is that, for the vast majority of loan officers, this is not likely to be a product loan officers should put a lot of time and effort into. I do believe the program has merit, and the desire to help financially ailing lenders and homeowners is certainly well-intended and appreciated. Of course, I do recommend educating yourself on H4H so that you are able to intelligently answer questions regarding the program. It is to this end that I am writing this article. Below, I will highlight the primary guidelines of H4H to help you to become an informed loan officer and help stay on top of your industry changes. On Oct. 1, 2008, the Federal Housing Administration (FHA) issued their guidelines for the H4H program through Mortgagee Letter 2008-29. Here are the things you need to know about the FHA's H4H program: Borrower eligibility •Borrower can be current or delinquent. •Borrower cannot have intentionally defaulted and must have made six full payments. •Borrowers must reside in the property and may not have any interest in any other real estate, including second homes or rental properties. •Borrower cannot have been convicted of fraud by state or federal authorities. •Borrowers cannot lie on the application (isn't it sad this has to be a guideline). •Borrower must be able to prove he had a housing expense ratio that exceeded 31 percent as of March 1, 2008. Mortgage eligibility •Borrower's current mortgage must have been originated on or before Jan. 1, 2008. •Current senior and subordinate mortgage holders must waive all prepayment and late fees and accept the H4H loan as payment in full. •Any type of mortgage is eligible to be refinanced with the H4H program, including adjustable-rate, interest-only, FHA, Veterans Affairs and conventional mortgages. Property eligibility •Property must be the borrower's primary and only residence. •Only one unit properties are eligible, including condominium, cooperative units and manufactured housing permanently attached to the realty they own. •Appraisal must be no older than three months. Terms of new mortgage •Only 30-year, fixed-rate mortgages are allowed. •Interest rate is to be negotiated between the lender and the borrower. •Upfront mortgage insurance premium (UFMIP) is three percent (so on a $200,000 loan, it would be $6,000). •Monthly mortgage insurance (MI) is 1.5 percent (and $250 per month for the same $200,000 loan)”think how much the current lender has to write down on the balance of the loan to allow the borrower to afford the payment with the MI, taxes and insurance. •Maximum mortgage amount is $550,440. •Maximum loan-to-value is 90 percent of the current value, including the UFMIP. •Closing costs are the standard costs for an FHA loan, per Mortgagee Letter 2006-04. •Ratios should be at 31/43, but allows a maximum of 38/50 if the lender had worked out a three-month trial modification (with payments made on time) prior to applying for Hope for Homeowners. •No subordinate financing for the first five years of the loan, unless it is needed for the maintenance of the property. •Initial and future equity will be shared as defined below and shared equity mortgage and note is signed. Equity and appreciation sharing (nothing's for free) •If property is sold within one year, 100 percent of the initial equity is taken by FHA; second year, 90 percent; third, 80 percent; fourth, 70 percent; and fifth, 60 percent. After five years, 50 percent of the initial equity is shared. •With all future appreciation, FHA will take 50 percent. As you can see from reading these guidelines, it will not be such an easy loan to do. In fact, given all the servicing lender considerations and requirements, this loan makes the 203k look like a breeze! Here are the three main reasons I believe that, at this moment in the product's history, the loan is not a viable one for the broker community: 1. H4H was designed as a loss mitigation tool for servicing lenders who wish to participate on a voluntary basis. Given this fact, you can expect that banks will use it on a case-by-case basis for their existing loans. Flagstar Bank recently issued a statement to their brokers that they will not be offering it to their brokers and that the H4H program will be used internally. 2. A large percentage of borrowers may not be willing to share 50 percent of their future appreciation as a trade off. At least for the time being, Americans maintain the hope and belief that things will turn around. If an eligible homeowner does the math, it will motivate them to make it through this tough time and possibly work out their own loan modification with the bank. Although the media focuses on the areas with extreme shifts in market values (like parts of California and Florida), most of the country is experiencing lower values, but not enough to get them to give away 50 percent of future appreciation. For example, let's say a homeowner in metro Detroit has a home with a current value of $160,000 (they owe $180,000) and they are struggling to make the payments, but want to keep the home, so they apply for H4H and commit to the equity share with a loan amount of $144,000. Then, within about one year, their income turns around and they are on financially stable ground. The housing market bounces back, and homes begin appreciating once again as the economy starts to gain momentum (historically, it always has eventually). Ten years later, Mr. Homeowner wants to sell the house, retire and move. With a modest three percent appreciation rate, the value of his home would be $215,000. Based on the equity share agreement, he would now have to pay FHA half of the $71,000 profit he would make from that sale. How would he feel looking back? 3. An absence of a secondary market for H4H. Have wholesalers been knocking down your doors to buy these loans from you? No! The big lenders are only doing them on a case-by-case basis for the loans they service themselves. Furthermore, because of the effort lenders are taking to restore the confidence of their investors, I don't think announcing their plans for originating billions of dollars in risky "who knows if they'll pay" H4H mortgages at their next stockholder meeting would go over real well. In an H4H audio piece I did, I spoke about a group of approximately 75 small retail mortgage bankers offering this program. If you speak to any of them, as I have, you'll find that they are getting inundated with hundreds of calls from people that are beyond help and cannot be assisted in anyway with the H4H program. One of these lenders even used the H4H offering as a free publicity tool, getting the local television media to come out to their offices. But so far, the investment in offering H4H hasn't paid off for them. In summary, I recommend sticking with the traditional ways to build a business ... through referrals. Become an expert at FHA and you will set yourself apart in the market. There's a big difference between a loan officer who doesn't know more than what's on his FHA flier, and one who can do an FHA training seminar for real estate agents and get those tough deals closed because they know the guidelines so well. Which one do you want to be? Go FHA! Jeff Mifsud founded Southfield, Mich.-based Mortgage Seminars LLC in 2004, has been an FHA originator for 12 years, is a contributor to and is a former FHA underwriter. Jeff may be reached at (877) 342-9100 or e-mail [email protected].
About the author
Apr 01, 2009
Looking For Change Under Every Couch?

Don’t overlook the obvious – employees have ideas for cost savings, too

Jun 10, 2024
New American Funding Announces New Cash-Offer Program

Similar to Opendoor and Homeward, NAF Cash Maps offers buyers a bidding war advantage

Jun 05, 2024
CFPB Issues Public Inquiry On Junk Fees Affecting Closing Costs

Agency seeks to understand why closing costs are up, who is benefiting, and how costs can be lowered.

May 30, 2024
STRATMOR, Teraverde Deal A 'Merger Of Equals'

The recent merger of mortgage advisory firms came without the need to lay people off or make any major staffing changes.

May 23, 2024
NEXA Pays Loan Officers 100% Of Commission Splits

LOs won't pay per-file fees or other hidden fees with NEXA100, says NEXA Founder and CEO Mike Kortas.

May 22, 2024
The Right Prescription

‘Doctor Loans’ making healthy strides in Florida

May 21, 2024