FHA H4H PROGRAM, GOVT INSURED LOANS FOR PEOPLE WITH PAST CREDIT PROBLEMS, LOW DOWN PAYMENTS. CREDIT SCORES OVER 580 CAN APPLY!

I am very excited to announce that the The Helping Families Save Their Homes Act of 2009 has amended the National Housing Act, providing for key changes in the HOPE for Homeowners (H4H) Program. The H4H Program is available for any loans originated from January 1, 2010 until September 30, 2011.

This program was enacted back in 2008, and was not an immediate success. Only a few banks were authorized by HUD to initiate these loans, and each loan application was subject to some very difficult underwriting criteria. Only a few of these loans closed last year and this year, and yours truly was one of the mortgage bankers that was able to successfully close an H4H loan. In one of my deals, I was able to save my client almost $ 1000 per month, and keep her from losing her home. She was behind 10 months for so on her mortgage. However, it was not an easy loan to close, and basically it took months to get it underwritten and closed.

The newer, updated version of this program has made some major changes that will make it easier to implement. This post, and several following it, will give readers an idea as to what the program is about, and what borrowers will need in order to secure one of these loans.

Key changes to the H4H Program:

- Borrowers are ineligible if their net worth exceeds $1,000,000,
- Borrowers must not have defaulted on any substantial debt in the last 5 years,
- The age of appraisal cannot be older than 120 days.
- Reduced mortgage insurance premiums, dropping to .75% per month, down from 1.5%! Up front mortgage insurance premium required was also dropped from 3% to 2.0%. Both of these provisions make the deal much more affordable.
- Revised loan-to-value and debt-to-income ratios,
- Maximum loan-to-value excludes the Upfront Mortgage Insurance Premium,
- Eliminated requirement for obtaining most recent two year tax returns,
- Eliminated special lender and underwriter certification,
- Shared Appreciation feature eliminated. Previously, borrowers were required to share any future appreciation with HUD. Big stumbling block!

A. Determining Eligibility to participate in the program

Here is what a bank will use to determine Borrower Eligibility

Mortgage Status: Borrowers are eligible for this Program, if:

- They have not intentionally defaulted on their existing mortgage(s) or any other substantial debt in the last 5 years (Intentionally defaulted means the borrower had available funds that could pay the mortgage and other debts without hardship. Debts subject to a documented bona fide dispute may be excluded. Substantial debt is any amount in excess of $100,000.) AND

- If delinquent on their mortgage, have made a minimum of six (6) full payments during the life of the existing senior mortgage .

If you are in, or where in bankruptcy, you are not precluded from participating in the H4H program.

Principal Residence: Borrowers must reside in the property securing the loan being refinanced, and may not have an ownership interest in other residential real estate (except for any inherited properties), including second homes and/or rental properties. In other words, you must quit-claim any other homes you own.

Net Worth: No individual borrower may have a net worth in excess of $1,000,000 at the time of the loan application. Banks are not required to include Qualified Retirement Plan accounts. Qualified Retirement Plans include, but are not limited to, IRA plans, 401(k) plans, the Thrift Savings Plan, Keogh plans, 403(b) plans, and 457 (b) plans.

Fraud Convictions: Borrowers must certify they have not been convicted of fraud under state and Federal laws in the last 10 years.

False Information: Borrowers must certify that they did not knowingly or willfully provide material false information to obtain the new mortgage under the H4H program.

Mortgage Payment-to-Income: In order to qualify for this loan, one of the most important characteristics is that at the time of the application to a lender, the borrower MUST HAVE a monthly mortgage payment-to- income ratio (DTI) on all existing mortgages greater than 31 percent of the borrower's gross monthly income. In other words, if your current income is $ 6000 per month, your mortgage payment, including taxes, insurance, home owner association fees, and 2nd lien payments MUST be no less than $ 1860.00 per month. If the payment you have now is $ 1400 per month, you don't qualify for the loan because your DTI would be 23%, which is below 31%.

In order to determine whether your income and debt ratio would be qualified, the bank will ask you for employment and income documents dated at the time of the application. They will also ask your bank to give them the total monthly mortgage payment including any amounts due on subordinate liens. If you don't escrow your taxes and insurance, you will need to provide that info also.

Mortgage Eligibility

Origination Date: The mortgage being refinanced must have been originated on or before January 1, 2008. Loans originated during 2008 and 2009 will not be eligible at all.

Primary Mortgage: Your current lender will be required to do the following:

- Waive all prepayment penalties and late payment fees (including insufficient funds fees) on the mortgage.
- Agree to accept the proceeds of the new H4H mortgage as payment in full, and

- Release their outstanding mortgage liens.

Subordinate Mortgage : Each holder of an existing subordinate mortgage must:

- Waive all prepayment penalties and late payment fees (including insufficient funds fees) on the mortgage
- Agree to accept the upfront payment as payment in full; and

- Release their outstanding mortgage liens.

Mortgage Type and Payment Characteristics: Any type of mortgage is eligible for refinancing under the H4H Program, including conventional (prime, Alt-A, subprime) or government-backed (FHA, VA, or Rural Development), fixed-rate or an adjustable rate mortgage; and the existing loan can be interest only, payment option arms, negative amortization and/or any other exotic features.

Property Eligibility

Only Residence: One to four unit properties are eligible. The property must be the borrower's primary and only residence in which they have an ownership interest (if there are non-occupant co-borrowers, they will need to quit claim their interest in the property prior to the occupying co-borrowers applying for the H4H Program);

An exception is provided for borrowers who - due to inheritance - have an ownership interest in other residential property.

APPRAISAL of the property must be performed by an FHA certified appraiser. Banks are ordering the appraisals through management companies, not to appraisers directly. A typical fee for an FHA single family home for example may be $ 500, and usually must be paid for in advance by a borrower. Usually, a bank will order the appraisal only when it appears that the loan has an excellent change of getting underwriten based on what information and data you have submited to the lender. Should your loan be more that the house is worth, then the new bank will begin the process of negotiating with your current lender for what is called a short payoff. I'll have posts on this subject later on in week.

B. Term and Rate on the H4H Mortgage

Only 30-year term, fixed-rate mortgages may be offered under this Program. The interest rates on these loans will be comparable to regular FHA loans.

C. MORTGAGE INSURANCE PREMIUMS- WHAT THE HECK ARE THEY!

The Upfront Mortgage Insurance Premium (UFMIP) is 2.00 percent of the base loan amount . It was 3%. For example, if you need $ 200,000, then the UFMIP is $ 4000 and it is ADDED to the $ 200,000 base loan. You are financing only $ 204,000. The new program saves you $ 2000 in financing costs. The Annual premium (collected monthly) is .75 percent of the base loan amount, down from 1.5%. So on this same loan, the monthly amount would be $ 200,000 x .75%/12 = $ 127.50. Again, you would save $ 127.50 per month under this new deal!

D. Calculating the Maximum Mortgage Amount

The amount of the H4H mortgage cannot exceed:

One-unit $550,440
Two-units $704,682
Three-units $851,796
Four-units $1,058,574

For a three- or four-unit property, the property rental income must be sufficient to pay the mortgage.

E. Maximum Loan-to-Value

The status of the mortgage being refinanced will determine the maximum loan-to-value ratio on the new H4H mortgage.

Borrowers Current on Their Mortgage: The maximum loan-to-value ratio on the new H4H mortgage is 105 percent of current appraised value (excluding UFMIP). Borrowers delinquent on their mortgage have two alternative loan-to-value (LTV) and debt-to-income (DTI) calculations are needed to be performed in order to qualify borrowers for the program:

1. A maximum LTV of 96.5 % of current appraised value (excluding UFMIP) is allowed provided the borrower's mortgage payment-to-income ratio and a total debt-to-income ratio under the new Program mortgage do not exceed 31 % and 43%respectively, or

2. A maximum LTV of 90 percent of current appraised value (excluding UFMIP), the borrower's mortgage payment-to-income ratio and a total debt-to-income ratio may be up to 38 percent and 50 percent, respectively. I will post an example of how this would work shortly. However, for borrowers with scores below 500, the maximum loan-to-value ratio on the new H4H mortgage is 90 percent of value.

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If you own a home, have credit scores over 580 FICO, have missed mortgage payments, but are current as of now, and your home is worth more than $ 271,000 to $ 650,000, we may now be able to refinance you into an FHA mortgage. CALL IMMEDIATELY AT 631-944-6910 FOR INFO or email me at afontana@lendamerica.com.

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The Senate & House last night passed the stimulus package that includes higher mortgage limits for both FHA and the GSEs (Fanny Mae, Freddie Mack). The original stimulus proposals only involved tax issues. Because of the importance of this legislation, the bill could be signed by the President as early as today.

Below are the key provisions of the bill with respect to the mortgages.

First, it is a temporary increase that expires on December 31, 2008. I will discuss the FHA and GSE changes separately below.

I. FHA
The mortgage limit provisions includes four temporary changes for the FHA program. (As a reminder, the FHA modernization bill includes higher mortgage limits. It is possible that legislation could make this provision permanent or limit the FHA maximum limit to $417,000 as the Senate bill does.)

* Raises the base loan limit ("floor") to 65% of the current GSE limit ($417,000) = $271,050

This provision is effective the day the President signs the bill.

* Raises the maximum FHA loan limit from $362,750 to $729,750 (175%
of the GSE base limit - $417,000)

o Secretary has the discretion to raise the maximum loan limit by $100,000 in an area at the $729,750 limit for any size residence (including 2-4
family units).

Only "high cost areas in California and Hawaii (Honolulu) are likely to increase to the $729,750 maximum. Washington D.C., for example, will
increase to about $600,000 based on our analysis of available data. While we developed these limits
following the FHA mortgage limit methodology, they are subject to possible change.

* Increases the calculation factor from 95% to 125% of area median sales price for determining "high cost" areas. We have an updated list of affected areas.

* Implements Fannie Mae/Freddie Mac ratios for calculating maximum loan amounts for two-, three- and four-family units in all of the above
categories Fannie Mae and Freddie Mac two-,three- and four family unit properties increase the same ercentage that the single family limit increases. In
2006. the GSE single family limit increased 15.95% and the mortgage limits for multiple units increased 15.95%.

This change should result in a significant increase in FHA limits for multi-unit properties. In the past, FHA used fixed percentages of the
single family limit (i.e. 107% of single family for two family unit, 130% for three-family unit and 150% for four-family units). For example, under the new provision, if the single family limit increases slightly over 100% in a "high cost area" (from $362,790 to $729,750), we would assume the multiple unit amounts would increase the same percentage slightly over 100%).

Fannie Mae & Freddie Mac:

The bill raises the GSE maximum loan limit to $729,750. The bill states that the GSE limits should follow the HUD mortgage limit calculation process and therefore the GSEs and FHA will have the same limits in areas that exceed $417,000. Fannie Mae and Freddie Mac's current limit will, in effect, become their "floor" ($417,000). As the attached chart demonstrates, there are a number of markets that will benefit from this change to the GSE mortgage limits though not as many as NAR advocated.
NAR will continue to advocate for broader expansion of the loan limits.

Since this is a new process for the GSEs, I would recommend waiting until the maximum limits are announced for Fannie Mae and Freddie Mac.

While I believe that these levels are accurate since we used HUD data sources, they are subject to possible change. To sum this up, if you own a home that has a value that was over the mortgage limits for your county, those limits will now increase to much higher levels. Many people could not refinance their homes because they were late on mortgage, scores were under 530, and values were to high. Now, if you have these first two situations, the third one has changed. A home in NY for example should be able to refi if its at $ 600K! While these numbers have not yet been given to us, we are calculating them based on the current ratios being used by HUD. This is significant. If you need help now, this is the time to call me. We are one of the largest FHA lenders in the country, and have been directly underwriting these loans for many years.

Give me a call.

Anthony
631-944-6910 or 917-331-9686

One major consequence of the sub-prime mortgage implosion is the difficulty many consumers with limited or impaired credit will have in obtaining mortgages.

But if suddenly tougher lending standards result in slamming doors at banks and mortgage companies, the venerable Federal Housing Administration loan might look much more inviting.

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The long-established FHA loan has always been designed to help the first-time buyer purchase a home of their own. However, it fell out of favor in recent years as its natural constituency was attracted to the exotic mortgages offered by sub-prime lenders.

As a result, many consumers ended up with loans -- and houses -- they really couldn?t afford.

At the urging of some in Congress, the U.S. Department of Housing and Urban Development is looking at modernizing the FHA loan to give consumers, who in the past would have obtained sub-prime mortgages, a better alternative.

Assistant Secretary for Housing Brian Montgomery urged a Senate Appropriations Subcommittee last week to pass legislation that enhances the FHA's government-insured mortgage products and "provides lower-income families safe, secure homeownership opportunities."

"Many first-time and minority homebuyers face significant challenges when trying to purchase a home. In recent years, such difficulties have resulted in many of these individuals assuming risky, adjustable-rate, sub-prime loans. The impact on African American and Latino borrowers has been particularly profound," Montgomery said.

According to 2004 HMDA (Home Mortgage Disclosure Act) Data, 40 percent of African-Americans and 23 percent of Hispanics pay an interest rate three percent higher than the market rate. The Center for Responsible Lending reports that 51 percent of refinancing transitions in African American neighborhoods are sub-prime loans.

"There needs to be a mortgage alternative which will qualify a wide swath of borrowers and simultaneously provide them with the loan options they require. Everyone should have access to a safe, affordable mortgage product; and this should not change just because that person is a first-time homebuyer, a minority homebuyer, or a homebuyer with troubled credit history," Montgomery added.

FHA was created in 1934 to stimulate the housing market during the Depression. Over its long history it has financed more than 34 million homes. But as lending practices have evolved and modernized, critics have charged the FHA has been slow to adapt,