HUD is realizing that the current HOPE for Homeowners (H4H) plan just isn’t working today it anoounced some important modifications to the program. We get this from a recent MarketWatch article on the subject:
The changes will give lenders a greater incentive to participate, by allowing them to write off less of the loan value than under the previous rules. Homeowners will benefit from lower monthly payments, but the loan’s term may be extended to as much as 40 years. The provisions will change the rules based on “Hope for Homeowners” legislation passed by Congress in July.
Under the new rules, homeowners won’t have to spend more than 31% of their monthly income on their house payment. For the lenders, the rules will allow them to write down a loan to 96.5% of the home’s actual value, rather than to 90% as under the old rule.
“These modifications should increase lender participation and help more families who are having difficulty paying their existing mortgages, but can afford a new affordable loan insured by HUD’s Federal Housing Administration,” said HUD Secretary Steve Preston.
In addition to income and spending restrictions, participating homeowners also can’t have household debt service of more than 43% of their monthly income. The new measure also can allow participating lenders to have their loan terms extended to 40 years from 30 years.
A number of existing Hope for Homeowners rules still apply. The mortgage must have originated before Jan. 1, 2008 and the loan amount can’t exceed $550,440.
In addition to easing up on some of the standards, there was also a provision added to make 2nd mortgage holders more likely to agree to the program:
The new HUD rules will also help second lien holders by providing them cash settlements up front to release their liens and clear the way for a refinance transaction with the Federal Housing Administration. The Treasury Department has issued bonds to pay second lien holder institutions to release their liens. The details of how much second lien holders will receive have yet to be released by HUD.
This provision was also received enthusiastically by the mortgage lending community. “By agreeing to immediately compensate subordinate lienholders, HUD is providing additional incentive for those lienholders to release their liens, which will free more borrowers to access the Hope for Homeowners Program,” Courson said.
While these more aggressive standards will surely help, only time will tell if the H4H program will take off or will continue to look dead on arrival as it has so far.