My original ?assignment? was to write about how mortgage brokers can take advantage of FHA?s new Hope for Homeowners (fondly nicknamed H4H by HUD) to help their clients who are delinquent, underwater, or simply over their heads in mortgage debt. My assessment so far is that H4H ?isn?t worth the paper it?s written on.? The better FHA option is FHASecure, an alternative program that works amazingly well for FHA approved brokers and their homeowner clients who are currently in trouble. A huge glitch is that the entire FHASecure program is currently scheduled to expire 12-31-08; whereas H4H is ongoing until 9-30-11. I strongly believe that FHASecure will be extended, mostly, because it looks so great politically ? not to mention that it?s actually working. However, I sure can?t guarantee it. Brief Overview, Hope for Homeowners (H4H) Before I entirely dismiss it, it?s only fair for me to tell you a little about Hope for Homeowners. H4H was legislated by the Home Economic & Recovery Act, and is being highly publicized by Washington as the program that will save the economy from foreclosures. I beg to differ. H4H became effective with HUD?s thirteen page Mortgagee Letter 2008-29, October 1, 2008. The parameters are quite complex and qualifying is difficult. It may take some time for pricing to settle down, but interest rates will likely be the same or higher than those of delinquent FHASecure loans. The Upfront MIP (UFMIP) is three percent and the annual premium is a hefty one and a half percent. The nationwide loan limit is generous at $550,440; however, the maximum LTV including all payoffs, the three percent UFMIP, and all costs of the loan ? is only 90 percent. Lenders are expected to waive their fees and cut their payoffs to make it work. There can be no secondary financing remaining. H4H borrowers must sign two additional promissory notes and mortgages with HUD, both recorded, which ?share? (a) the current ten percent equity in the home (remember, it?s 90 percent LTV), and (b) any potential future appreciation. HUD will sometimes split some of their portion of the future appreciation with 2nd mortgage lenders, yet never with the 1st mortgage holders. Needless to say, this doesn?t sit well with first mortgage lenders. I can?t fail to mention that per legislative mandate, HUD won?t insure the new H4H loan if the borrower fails to make the first mortgage payment; another ouch for the lenders. Personally, I don?t think H4H is all that great a deal for homeowners or lenders, in trouble or not. My guess is that some of the larger lenders will use the program, but only as a last resort. Mortgage brokers most likely won?t get involved in H4H loans at all, which brings us back to FHASecure. The FHASecure Program FHASecure has been around since August 2007, when it was established as a Presidential Initiative. Originally, it only helped homeowners who were delinquent as a direct result of a reset in their conventional ARM loan. On July 14, 2008, FHASecure was expanded to include all of the following: ? Eligibility ?rate and term refinances of conventional mortgages only ? Loan amounts ? from 97.15 percent to 98.75 percent of new value, up to the maximum allowable FHA loan limits in the area ? Full borrower qualifying ? with eligibility leniencies ? CLTV Options for Insufficient Equity ? unlimited CLTV to accommodate work-outs with current lenders ? Non-delinquent FHASecure ? standard FHA rates and MIP for borrowers who need to get out of a conventional loan yet are not currently delinquent ? Delinquent FHASecure ? borrowers who are currently delinquent on a conventional ARM loan with many leniencies for prior and current mortgage delinquencies The point is to assist homeowners out of any conventional mortgage that they need, and into a nice, safe, FHA loan. FHASecure - Maximum Loan Amounts The maximum LTVs range from 97.15 percent to 98.75 percent, exclusive of upfront MIP, up to the maximum allowable statutory loan limit for the area. Effective January first, 2009, the new maximum LTV is expected to be 100 percent, inclusive of upfront MIP. (Final calculations are still being hammered out by HUD as of this writing.) FHASecure - Qualifying With the exception of credit ?eligibility? leniencies as allowed by the program, all FHASecure borrowers must fully qualify for the new loan using FHA?s standard underwriting guidelines. FHA only wants borrowers who are truly able and willing to make their future house payments; a homebuyer jumping from one bad situation into another helps nobody. FHASecure - Insufficient Equity - Delinquent or Non-Delinquent For homeowners who owe more than 100 percent of the current value of their home, FHASecure encourages ?work-outs? with the current lender(s) by allowing unlimited CLTVs for existing and for newly created subordinate financing. Examples of ?work-outs? include: 1. Existing secondary financing can be re-subordinated or modified to add outstanding charges or to otherwise accommodate the transaction. 2. A new second mortgage can be created by the current lender (or other source) to ? cover payoff shortages and past due fees and charges, sometimes including PITI arrearages; or ? cover all amounts that exceed FHA?s current maximum loan limit for the area. 3. Funds for new financing can come from any source, such as ?rescue funds? which are becoming increasingly available through non-profits, states, and other government agencies. There are restrictions on the terms of the secondary financing that I haven?t covered (see ML 2008-13); even so, lenders are becoming more and more willing to negotiate as opposed to paying the costs of foreclosure. Although clients must always negotiate directly with the lender, the new FHASecure loan won?t come together without the oversight and assistance of an educated and resourceful loan originator. Note: If the subordinate financing is a new loan as opposed to re-subordination or modification of an existing loan ? the lender will price the new FHASecure mortgage using ?delinquent? pricing, regardless of whether or not the loan is delinquent. FHASecure Non-Delinquent Non-delinquent FHASecure includes all conventional-to-FHA rate and term refinances that are not currently delinquent. What?s great is that interest rates along with FHA?s upfront and annual mortgage insurances are the same as regular 203(b) mortgages, with the exception in rates noted above. In addition to all of the CLTV options above, the FHASecure non-delinquent has some credit underwriting leniencies. For instance, ML 2008-13, page 7, suggests that clients who kept their mortgage current yet let other loans slide should be given favorable considerations. Also, DE underwriters are encouraged to allow prior mortgage delinquencies that were clearly caused by a reset. No matter, the ultimate decision is still up to the DE Underwriter and/or lender who often impose their own credit standards or minimum credit scores. FHASecure Delinquent ?FHASecure delinquent? is for refinancing conventional ARM loans only, and only if they are currently delinquent. (Prior delinquencies fall under ?non-delinquent? FHASecure.) The delinquency must either be (a) caused by a reset, or (b) the result of extenuating circumstances. Option (b) is not available for those refinancing from interest only (IO) or from Option ARM loans. FHA has very specific limitations on the amount of times that the current loan can be delinquent, and for some reason, they are much more tolerant when the loan is not an IO or Option ARM. (Don?t ask me?) Originators and brokers must examine the homeowner?s prior mortgage credit history at the very first of the process to make sure they qualify. FHASecure ?delinquents? have much higher pricing than regular 203(b) mortgages. The Upfront MIP is three percent, though the annual is only 0.55 percent. Any future refinance of a delinquent FHASecure must be full-qualifying, as they are not eligible for streamlined refinances. However, you can always look to these borrowers for future refinances at lower rates once their credit history improves. Bottom Line Whenever I?m speaking to an industry group about FHA mortgages, I always review FHASecure as one of the many viable niche products available. It?s not unusual to have one or two originators say that they are never able to get FHASecure loan files through underwriting; while others in the same room have successfully originated FHASecure mortgages time and again. I?m pretty sure that the first category lacks the education and/or patience necessary to make this loan workable. For a copy of HUD?s ML 2008-13, go to www.hudclips.gov. Additional information and reference charts are also available through my website. In the end, FHASecure is not a save-all. It won?t help all of your clients who are experiencing difficulties making their payments, but still, HUD reports a total of 325,000 FHASecure mortgages made as of August 2008, only one year since inception of the program. H4H does not come close to replacing FHASecure. I?m not the only one who will be highly disappointed and shocked if the program isn?t extended. Leslie Petersen with over 30 years experience in mortgage lending, writes www.MortgageCurrentcy.com, an online newsletter on the changes in Fannie/Freddie, FHA, VA and other regulatory agencies--but with a twist. For Originators, Underwriters and Managers, she also interprets them in plain English and shows them how to make the rules and changes work for them--and get more of their loans approved. Find her at [email protected].
