Originally, this post was referring to an AP story about more companies lining up for a piece of the bailout fund. But alas, hidden within that story was a little treasure about the HOPE for Homeowners program passed by Congress in October to help those at risk of foreclosure or default refinance their debt and stay in their home.
Like all federal programs that hand out dollars to states, municipalities or individuals, strings are attached. Maybe that’s why only 312 applications for the program have been received.
The program was designed to help as many as 400,000 homeowners by offering them the ability to swap out their “risky” adjustable rate mortgages for a 30 or 40 year fixed rate deal. If you were having trouble making your payments, this program was for you.
I can not even begin to count all of the reasons people did not like the program, but I guess if you were in a situation where your payments were getting out of hand and you wanted to stay in your home, you’d take a look.
The HOPE for Homeowners (H4H) program allows homeowners, councilors and originating lenders to tap into a program to refinance debt as long as a few conditions are met.
Note the program is voluntary, and vailable through US Department of Housing and Urban Development (HUD) approved lenders. Banks are not required to participate in the program.
Here is the deal for the current homeowner. The mortgage is refinanced at 96.5 percent of the current appraised value of the home; the refinance automatically provides 3.5 percent equity. So if you are upside down, the program wipes out your obligation above the current value of the home.
On top of that, the mortgage finance amount is only 90 percent of the adjusted appraised value.
The FHA lender takes a loss on the difference between the existing loan and the new loan, and homeowners will need to go through the loan approval process like they should, but the real highlight of the program is the shared equity part of the deal.
The Federal Housing Administration (FHA) gets a chunk of all future equity, above the financed principle. That’s right, the federal government is part owner of your house.
Here is an example of how the equity sharing works directly from the HUD Web site.
Appraised Value – $200,000
Financed Amount – $180,000 (90 percent)
Initial Automatic Equity – $20,000
If you sell or refinance your home within the first five years, the FHA takes a declining share of the total equity, but after five years, and into the future, you and the FHA split the profits.
So yes, if that $200,000 home is sold 20 years from now at $400,000 (as an example), the FHA’s take is $105,000.
Gee, maybe that’s why the program is not taking off? How would you feel about the FHA, a division of the HUD, owning a chunk of your future equity?
For background, SFGate.com highlighted the program on Oct. 2 with additional details.