Wednesday, October 22, 2008

The Hope for Homeowners Program Launched on Oct. 1, 2008: What Do I Need to Know About It?

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys,

In the rush of events on the national financial scene of the last few weeks and months it is difficult for a bankruptcy practitioner to to keep straight the various governmental interventions much less understand their consequences on her clients and on her practice. This Bulletin shines some light on one of the initial major events--The Housing and Economic Recovery Act signed into law on July 30, 2008-- and critical aspects of its Hope for Homeowners Program, which has now been in effect since October 1.


This Act was the one promoted by Treasury Secretary Paulson as the means to restore investor confidence in Fannie Mae and Freddie Mac, by giving him the capacity to use taxpayer funds to intervene. At a July 15 Senate Banking Committee hearing he famously said "If you have a bazooka in your pocket and people know it, you probably won't have to use it." By early September, he had to use that bazooka with the federal takeover of those critical institutions.

Within the Housing and Economic Recovery Act umbrella was a distinct Hope for Homeowners Act. This created a new program within the Federal Housing Administration (FHA)--voluntary for both lender and borrower--to back up to $300 billion in FHA-insured mortgages to distressed homeowners. Through this program an owner-occupant may be able to refinance his unaffordable mortgage to an affordable fixed-rate 30-year mortgage at the lowered principal of 90% of their present home appraised value, IF the homeowner meets a series of conditions, and IF the lender agrees. In the two and a half months since the Act's passage the agency says that it "has worked diligently to develop and implement the program as directed by Congress . . . establishing underwriting standards to ensure borrowers, after any write-down in principal, have a reasonable ability to repay their new FHA-insured mortgage." The FHA has also compiled a list of participating lenders, which it anticipates updating every Friday.

Borrower Eligibility

Here is a partial list of conditions from an October 1 news release from the Department of Housing and Urban Development (HUD):
  • The home is their primary residence, and they have no ownership interest in any other residential property, such as second homes.

  • Their existing mortgage was originated on or before January 1, 2008, and they have made at least six payments.

  • They are not able to pay their existing mortgage without help.

  • As of March 2008, their total monthly mortgage payments due were more than 31 percent of their gross monthly income.

  • They certify they have not been convicted of fraud in the past 10 years, intentionally defaulted on debts, and did not knowingly or willingly provide material false information to obtain their existing mortgage(s).
How a Homeowner Gets Started

The FHA has detailed information on its website about the Hope for Homeowners program. As for how to get started it suggests:

There are four ways that a distressed homeowner could pursue participation in the HOPE for Homeowners program:

  1. Homeowners may contact their existing lender and/or a new lender to discuss how to qualify and their eligibility for this program.
  2. Servicers working with troubled homeowners may determine that the best solution for avoiding foreclosure is to refinance the homeowner into a HOPE for Homeowners loan.
  3. Originating lenders who are looking for ways to refinance potential customers out from under their high-cost loans and/or who are willing to work with servicers to assist distressed homeowners.
  4. Counselors who are working with troubled homeowners and their lenders to reach a mutually agreeable solution for avoiding foreclosure.
It is envisioned that the primary way homeowners will initially participate in this program is through the servicing lender on their existing mortgage. Servicers that do not have an underwriting component to their mortgage operations will partner with an FHA-approved lender that does.
Primary Resource for Following Through

The FHA website on the Hope for Homeowners program has tremendous amount of information about the program, including detailed procedural steps for borrowers as well as lenders, sample letters and forms, examples of how the program would work for certain kinds of borrowers, and even the 34 pages of last-second promulgated regulations.

by Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys

Please note that this writer is not licensed to practice law in Oregon. This means that he is not legally permitted to give any legal advice or provide and legal services. This Bulletin and the entire contents of this website is written only for attorneys. and is not intended for the public. If any non-attorney is reading this, you must consult an attorney about ANYTHING you read here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.

© 2008 Bankruptcy Litigation Support for Attorneys