The Hope for Homeowners Plan for foreclosure rescue: This provision will allow people who are “up side down” on their home to refinance into a new FHA mortgage based on 90% of the appraised value. The current mortgage company must agree to be paid off for less than they are potentially owed, but in some cases this may cost them substantially less money than going through the foreclosure process. The government splits the future appreciation with the homeowner when the home is eventually sold. The formula is as follows:

This is only available on primary residences purchased before January 1, 2008. It must be proven that the homeowner cannot afford their current house payment (their debt to income ratio must be above 31%), they must prove that they have the ability to pay the new loan through tax returns, and they must sign a letter stating that they have not intentionally defaulted on their current mortgage. In addition, the current mortgage holder must agree to accept 90% of the appraised value.
Lynn: The hope is that this will substantially slow the tide of foreclosures, but it may not be as good as it seems: The upfront mortgage insurance premium has been raised to 3% of the loan amount, and must come from the proceeds of the old loan. What that means is that the current lender will actually net closer to 87% of the appraised value. Example: Let’s say we had a home purchased in 2005 for $250,000, with a loan that was for 100% of the purchase price, so $250,000. Let’s assume the value on that home has dropped 10% in the last few years, making it worth $225,000. The maximum loan amount allowed under this plan will be $202,500. The current mortgage lender would have to agree to a short sale of $202,500 minus the 3% Mortgage Insurance Premium = $195,750 net to the original lender. They may feel they could do better by foreclosing on the property. In addition, there will be a 1.5% annual premium due by the homeowner, meaning the true cost of the loan won’t be as low as it appears. There will be no second mortgages allowed on these new loans for the first 5 years (unless it can be demonstrated that it was necessary for the maintenance of the property), and if a second mortgage is approved down the line, it can never reduce the appreciation the government is owed. Clearly, the Hope for Homeowners is intended as a means for many people to save their home, but there is a sunset clause set for September 30, 2001, so if you know of anyone who may benefit from this plan, be sure to have them call us – let’s see if we can help get them out of a bad financial situation.

National Mortgage Licensing System for Brokers and Bankers:
This will require a national registry for all Loan Originators, regardless of whether they are brokers or bankers. Every Originator will have a unique identifier and background check (criminal and credit). Minimum industry education requirements (including annual continued education) will be set by each state, or in lue of state requirements, the federal government.
Lynn: Halleluiah!!! It looks like the government is finally catching up to what I’ve been advocating for years. It has been ridiculously easy to get into the mortgage business (a huge contributor to the big mess that the real estate industry is in). I voluntarily took on extra education and certifications over the past several year, obtaining my CMPS®, and my CMA, in a move to clearly distinguish myself from the average street Originator. Dealing with a home mortgage is a gigantic decision, and you deserve to have someone who knows what they are doing advising you.

FHA down payment revisions: The requirement is being raised from 3.0 to 3.5%. In addition, the “Down Payment Assistance” programs are being completely eliminated. These programs allowed the seller to make a contribution to a specified non-profit organization, who in turn could “gift” it to a home buyer. The reasoning behind this clause is that the down payment assistance programs have a 28% default rate, which is 3 times the rate of traditional FHA loans. Because of this the FHA Fund is running out of money. The federal government is looking at having to inject money into the FHA Fund for the first time in history.
Lynn: For the last 6 to 12 months, these down payment assistance programs have been the only remaining way to structure a “zero down” loan. We have been using this program very successfully, and it’s my opinion that by eliminating it, home sales will be further slowed. The number of potential buyers in the market today far outweighs last year, but it is much more difficult to get approved for mortgage financing, which means lots of these home buyer hopefuls are hearing “no” – the down payment assistance programs have been a tremendous help during this time. It doesn’t seem to me to be a good idea to put another hurdle in the way for buyers (and sellers). This provision is set to be effective on October 1, 2008, so if you know anyone who wants to buy a home, but doesn’t have a down payment saved, please have them call us right away!

Part 2: FHA will now allow the 3.5% down payment to be in the form of a second mortgage with a family member versus a gift – all the way to 100%.
Lynn: This is a BIG DEAL – a huge departure from the previous requirement that FHA down payments could only come from a gift. The one loop-hole left to structure a “zero down” loan. The only catch: the buyer must have a relative who has the cash to lend, and the desire to lend it. We have a source that can take care of the paperwork, recording of the second mortgage, etc. to make sure everything is legit, and remove the chance for family hard-feelings down the road.

Conventional and FHA loan limits permanently raised: Sorry folks, probably not here in Minnesota. While we are enjoying a temporary raise of our FHA loan limits (from the previous $271,000 to $365,000 in most metro counties), the Recovery Act allows for a permanent raise of the limit to be based on county median sales price.
Lynn: Unfortunately, our median prices will not support a raise in the FHA current limit, or our Conventional limit of $417,000. We’re actually going to be paying close attention, as there is some concern that our allowable limits may go down based on the formulas. As a current homeowner, your value could reduce further if our loan limits are dropped, because few buyers have the down payments now required for Conventional loans, meaning even fewer successful home sales. The temporary FHA increase to $365,000 will expire on December 31, 2008, so if you know anyone who is hoping to buy a home with very little down, there is no time to delay!