U.S. HOUSING RELIEF BILL Offers HOPE - But Only for Some!
PASSAGE OF BILL, EXPECTED THIS WEEK, COULD PROVIDE RELIEF FOR 400,000 DISTRESSED HOME OWNERS!
Mortgage rate resets. Declining home values. Reduced levels of home equity. Sub-prime loans in default. Foreclosures on the rise. Short Sales on lender's desks. All are earmarks of the housing and credit crisis affecting Chicago, and other parts of the U.S.
Relief may be on the way for some, however, as the much-debated Housing Relief Bill may be headed to President Bush's desk as early as this week.
But, who would benefit from the new legislation? Here is an executive summary:
The $300 Billion "HOPE" Program will completely revamp federal oversight of the way home mortgages are administered by giant, federally-sponsored mortgage procurers and guarantors, Fannie Mae and Freddie Mac. One of its most basic premises assumes distressed home owners could avoid default, and subsequent foreclosure, if their loan balances, interest rates, and monthly payments are reduced.
For lenders, the program will be a VOLUNTARY one. Lenders, and their investors, who own defaulting mortgages will not be forced to allow all delinquent borrowers the opportunity to refinance. Those that do agree, however, will be subject to considerable write-downs on certain delinquent loans. The new maximum HOPE Loan Amount, insured by the Federal Housing Administration (FHA) will be 90% of today's market value of the subject property.
The FHA will also impose an upfront mortgage insurance fee of three percent of the new loan amount, payable out of refinancing proceeds. Under the old system, much of that insurance premium would go to the lender itself.
Lenders also will have to clear potential issues with holders of second liens or mortgages on the home before participating in the HOPE Program. These include equity lines or second mortgages extended by other financial institutions or banks.
These are important qualifications that must be addressed by the borrower -
1. They must demonstrate a "lack of financial capacity" to pay their current mortgage, but they must earn enough income to make payments on a smaller, fixed-rate FHA loan. Their income-to-mortgage debt ratio must top 35%.
2. They must certify that they haven't "intentionally defaulted" on their mortgage or on any other debt to refinance into a HOPE loan. They must also affirm that they are telling the truth about their financial status, and have never been convicted of a fraud. Anyone who lies on their application will be subject to penalties, including up to five years in prison.
3. They must agree to use and occupy the refinanced house as their principal residence, and not own or purchase any additional houses or investment property.
One novel feature of the HOPE program is a requirement that the borrower share any appreciation or gains in home equity with the lenders, since the maximum re-finance amount will be 90% of the property's current appraised value.
These borrowers will suddenly find themselves with a minimum 10% equity on their homes immediately after the new loan closes. But they will not be able to easily tap this equity, as the new program provides for FHA Recapture of a portion of the equity gains, up to 50 percent, when the home is eventually sold.
The HOPE Program can start as early as October of this year, and, by legislation, will terminate at the end of September, 2011.
In today's Chicago Tribune, see Kenneth R. Harney's story for more information.
DEAN MOSS & DEAN'S TEAM CHICAGO
