Hope for Homeowners

The Plan: Establishes a new FHA program, the Hope for Homeowners program, with an additional $300 billion in FHA mortgage insurance authority. Under the program, principal balance and interest rate for eligible borrowers is reduced through refinancing into new, affordable FHA-insured loans based on current property values. Loans will be eligible for securitization with Ginnie Mae.

Reps and Warrants: Requires insurance benefits not be paid if a mortgage violates the representations and warranties the program's governing body (Board) will require or if the borrower of the new loan fails to make the first payment on the FHA loan.

Eligibility: Mandates mortgages eligible for refinance be originated on or before January 1, 2008. Borrowers must have debt-to-income ratios greater than 31 percent (or a higher ratio set by the Board) as of March 1, 2008. Borrowers must certify they did not intentionally default on the original mortgage or other debts or furnish false information (five year jail time for false statements) to obtain the FHA loan. Borrower not eligible if convicted of fraud or previously defaulted on government loan. Borrower's income must be fully documented through two most recent tax returns and meet other standards established by the program's governing board or HUD. Eligible borrower may only have one primary residence.

New Loan Requirements: Requires 30-year fixed-rate loan not exceeding 90 percent of the property's current value. Principal amount cannot exceed 132 percent of the 2007 Freddie Mac loan limits, or $550,440. Board establishes reasonable limitation on origination fees. Prohibits junior liens for five years.

Write-Down: Requires participating noteholders agree to a reduction in principal to achieve the 90 percent loan-to-value requirement. Also, requires waiver of prepayment penalties and fees related to default or delinquency.

Premiums: Requires noteholder to pay the 3% upfront premium from the proceeds of the refinance. Borrower pays 1.5% premium annually.

Shared Appreciation: Requires borrower to share future equity with FHA when the property is sold or the loan is refinanced. Homeowner's share of newly created equity will be phased-in over five years. After five years, homeowner and government each will share in 50 percent of the equity. Program's governing board establishes standards for sharing future appreciation owed to HUD with subordinate lienholders.

Sunset: Program runs from October 1, 2008 through September 30, 2011.

Servicer Liability: Amends the Truth in Lending Act (TILA) to create a fiduciary duty for mortgage servicers to "maximize the net present value of the pooled mortgages in an investment to all investors and parties having a direct or indirect interest." The duty does not supersede servicing contracts to the contrary. Also would deem servicers to act in the best interests of all investors if the servicer implements a refinance or modifies a loan, meeting certain conditions such as being in default, through the Hope for Homeowners plan.  

Please Contact me for further Information
Tim Bradford
216-324-8113