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 LoanToolbox.com and is a
former FHA underwriter. Jeff may be reached at (877) 342-9100 or
e-mail
[email protected]
