About Government Refinance and Home Purchase Programs

People often ask us what the interest rate on FHA loans is. The answer is pretty simple: It is normally very close to the rates on a conventional loan.

As we have discussed before, an FHA loan is essentially the same as a conventional loan. Banks still loan you the money, the difference is that with FHA loans Uncle Sam is co-signing with you. So while banks might reject your conventional loan application because your credit score is below 680 or because you have less than 90% equity in your home, when you bring Uncle Sam along banks become willing to approve your loan because they know that if you default they can turn to Uncle Sam to get their money back.

So then how are mortgage interest rates determined? The answer is pretty simple. The best mortgage rates tend to be 2-3% greater than the rate on the 10-Year Treasury Note. So while you often hear news about the Fed dropping the “Key Rate” or news about the stock market, it is the 10-Year Treasury Note that is the best indicator on where mortgage interest rates will be — including FHA rates.

This week the the rate on that index has shot upward and unfortunately mortgage interest rates have followed. But with any luck the rates will drop again soon. October 2008 has been a volatile month in the financial markets to say the least.

Here is an excerpt from an interesting article at cnnmoney.com from a few years back explaining this concept of how mortgage rates are determined in more detail:

Basically, when you take out a mortgage, a bank, mortgage company or other mortgage originator is making you a loan at given interest rate. Sometimes the firm that makes the loan holds onto it.

But more often than not, the lender or mortgage originator sells that loan to an institution that packages it with other mortgages into what’s known as a mortgage-backed security and then sells that security to investors. That investor, whether it’s a mutual fund or a large institutional investor, earns a return by collecting the principal and interest payments that you and all the other mortgage borrowers make.

In order to get investors to buy those mortgage-backed securities, they must pay rates of interest that are competitive with alternative interest-paying investments such as Treasury bonds.

You might figure that, since a 30-year mortgage has the same term as a 30-year Treasury bond, mortgage rates might track the rates on long-term Treasury securities. In fact, 30-year mortgages remain outstanding on average about 10 to 12 years, so rates on 30-year mortgages tend to track the yields on 10-year Treasury notes.

Of course, since you and other mortgage borrowers aren’t as good a credit risk as Uncle Sam, rates on mortgages are somewhat higher than those on 10-year Treasuries. In general, 30-year mortgage rates are about two percentage points higher, but that spread can vary depending on the supply and demand for Treasuries and mortgage-backed securities as well as a number of other factors.

John McCain announced a radical idea relating to mortgages in the presidential debate last night. Earlier today his camp provided more details. Here is a useful summary from an article over at US News and World Report:

Here’s how it works:

Step One: Struggling homeowner contacts mortgage broker
To initiate the process, struggling borrowers tell their mortgage broker that they would like to refinance their loan through this initiative. The program would be open to a wide swath of distressed borrowers: You do not have to be in foreclosure or even underwater on your mortgage to participate. Participation is limited to primary residences and homeowners who can prove that they were creditworthy borrowers when they got their original loan.

Step Two: Government buys the distressed mortgage
If the troubled borrower qualifies, the government will buy the mortgage.

Step Three: Government provides a new, federally guaranteed mortgage
After acquiring the distressed mortgage, the government will swap it for a more-affordable, fixed-rate home loan backed by the FHA. Holtz-Eakin said the rates for the new mortgages would be “in the low fives at this point.” That’s significantly less than current 30-year fixed rates. Funding would come from existing initiatives such as the recently enacted $700 billion bailout. By stabilizing the housing market, Holtz-Eakin said, the plan might be able to ease the stress in the credit markets enough to reduce the final tab of the $700 billion bailout.

How many people will it help?
Holtz-Eakin said McCain’s plan “could help literally millions of people.”

Will it work?
Susan Wachter, a professor of real estate at the University of Pennsylvania’s Wharton School, says that while the plan could certainly help struggling borrowers, it may end up costing more than estimated. “Three hundred billion does not sound like it’s nearly enough,” she says. That’s partly because there are so few limitations on who can participate in the program. “The way it reads here, tomorrow we should all be lining up [to participate],” Wachter adds.

Meanwhile, Christopher Thornberg of Beacon Economics doesn’t think the plan will be able to halt the painful decline in home prices. “The problem is not people losing those homes; the problem is people trying to buy those homes can’t afford them,” he says. Despite precipitous declines already, home prices have to fall further before they become affordable to most Americans, Thornberg says. McCain’s plan is predicated on the notion that “if we could just stop home prices from falling, everything will be fine,” Thornberg says. “And my comment to that would be: ‘Yes, and if we could just stop gravity, we could all fly.’ “

Here are the specific eligibility requirements for a H4H loan as released by HUD earlier this week:

Borrower Eligibility

Borrowers who are current or delinquent on their mortgage at the time of the refinance are eligible for this Program, if they:

– Have not intentionally defaulted on their mortgage or any other debt (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.) AND

– Have made a minimum of six (6) full payments during the life of the existing senior mortgage (full payment is defined as what was acceptable to the lender for meeting the monthly payment obligation under the terms and conditions of the mortgage).

Borrowers must reside in the property securing the loan being refinanced, and may not have an ownership interest in other residential real estate, including second homes and/or rental properties.

Borrowers cannot have been convicted of fraud under state and Federal laws in the last 10 years.

– Similar to its validation tool for social security numbers, FHA will use an automated tool at the time of case number assignment that will check the borrower’s name against several databases for convictions of fraud and an ownership interest in other residential properties. In the event that the lender receives a warning at case number assignment and believes it is in error, it must provide evidence to the appropriate Homeownership Center documenting that the borrower has not been convicted of fraud or does not have an ownership interest in other residential properties. Once the Homeownership Center evaluates the documentation, it will determine whether to lift the warning.

Borrowers must certify that they did not knowingly or willfully provide material false information to obtain the existing mortgages being refinanced under the H4H Program.

As of March 1, 2008, the borrower’s aggregate total monthly mortgage payment debt-to-income ratio (DTI) on all existing mortgages must be greater than 31 percent of the borrower’s gross monthly income. The total monthly mortgage payment is defined as the fully-indexed and fully-amortized Principal, Interest, Taxes and Insurance (PITI) payment (this includes principal and interest, taxes and insurances, homeowners’ association fees, ground rents, special assessments and all subordinate liens).

FHA recognizes that reconstructing the borrower’s prior total monthly mortgage payment DTI as of March 1, 2008 may be difficult, especially as the H4H Program nears its sunset date. To comply with this eligibility requirement, lenders must obtain:

1. From the borrower, evidence that the prior mortgage DTI was more than 31 percent on March 1, 2008, such as pay stubs for March 2008, or a signed and dated copy of the individual 2008 Federal tax return, when available, to determine gross monthly income for that month (earnings divided by 12), or W-2s, financial records, or verification of employment from the borrower’s employer.

Lenders may also rely on the borrower’s signed and dated 2007 Federal tax return if the lender has no reason to believe that the borrower’s income in March 2008 was materially different than the income reported on the 2007 Federal tax return.

To determine March 2008 income for self-employed borrowers, obtain a copy of the quarterly tax return that contains income stream information for March 2008 or a signed and dated Profit and Loss Statement and balance sheet that contains income stream information for March 2008 or a signed and dated copy of the individual 2008 Federal tax return, when available, (earnings divided by 12).

2. From the servicer of the mortgage, the borrower’s total monthly mortgage payment due for March 2008, including any amounts due on subordinate liens.

For mortgages without escrow accounts, the lender should obtain tax and insurance information from the borrower. If the borrower does not provide insurance information, then the servicer of the mortgage should estimate the monthly cost of hazard insurance (and flood insurance, if applicable) based on the property’s location and the rates in effect for 2008. If the borrower does not provide real estate tax information, the lender should obtain it from public records.

Mortgage Eligibility

The mortgage being refinanced must have been originated on or before January 1, 2008;

Each holder of an existing senior mortgage being refinanced must:

1. Waive all prepayment penalties and late payment fees (including insufficient funds fees) on the mortgage. Prepayment penalties are defined in the Federal Reserve Board’s Regulation Z (Truth in Lending), 12 CFR 226.32(d)(6);

2. Agree to accept the proceeds of the new H4H mortgage as payment in full, and

3. Release their outstanding mortgage liens.

Each holder of an existing subordinate mortgage must:

1. Waive all prepayment penalties and late payment fees (including insufficient funds fees) on the mortgage. Prepayment penalties are defined in the Federal Reserve Board’s Regulation Z (Truth in Lending), 12 CFR 226.32(d)(6); and

2. Release their outstanding mortgage liens.

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 mortgage being refinanced may have a variety of payment characteristics, including interest only, payment option, negative amortization and/or any other exotic features.

Property Eligibility

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);

Only 1 unit properties are eligible, including condominium units, cooperative units and manufactured housing permanently affixed to realty.

Here is the press release that was published today at the HUD web site on the official first day of the Hope For Homeowners loan program:

BUSH ADMINISTRATION LAUNCHES “HOPE FOR HOMEOWNERS” PROGRAM TO HELP MORE STRUGGLING FAMILIES KEEP THEIR HOMES
Detailed Program Eligibility Requirements Announced

WASHINGTON – The Bush Administration today unveiled additional mortgage assistance for homeowners at risk of foreclosure. The HOPE for Homeowners program will refinance mortgages for borrowers who are having difficulty making their payments, but can afford a new loan insured by HUD’s Federal Housing Administration (FHA).

“For families struggling to keep up with their mortgage payments, this program will be another resource to refinance into a loan they can afford,” said HUD Secretary Steve Preston. “FHA remains a safe and affordable alternative to the high-priced mortgage loans that threaten homeowners’ ability to retain their homes. We strongly encourage borrowers to work with their lenders to determine if HOPE for Homeowners is the right program for them.”

The HOPE for Homeowners program was authorized by the Economic and Housing Recovery Act of 2008. Since the President signed this vital legislation into law on July 30, 2008, the HOPE for Homeowners Board of Directors has worked diligently to develop and implement the program as directed by Congress. The Board was charged with establishing underwriting standards to ensure borrowers, after any write-down in principal, have a reasonable ability to repay their new FHA-insured mortgage.

The HOPE for Homeowners program begins today and ends September 30, 2011. The program is available only to owner occupants and will offer 30-year fixed rate mortgages – so the borrower’s last payment will be the same as the first payment. In many cases, to avoid what would be an even costlier foreclosure, banks will have to write down the existing mortgage to 90 percent of the new appraised value of the home.

Borrower Eligibility

Borrowers are encouraged to contact their lender to determine eligibility, but may be eligible if, among other factors:

* 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 the HOPE for Homeowners program works

“HOPE for Homeowners will add to HUD’s existing efforts to make FHA refinancing available to homeowners who need it most,” said FHA Commissioner Brian D. Montgomery. “One year ago, FHA expanded refinancing into its FHASecure program. Since that time, we have helped more than 360,000 families keep their homes by refinancing with FHA, and we will assist a total of 500,000 families by the end of this year.”

The Board expects that the primary way homeowners will participate in the program is by working with their current lender. HOPE for Homeowners will serve as another loss mitigation tool available to distressed borrowers.

HOPE for Homeowners also includes the following provisions:

* The loan amount may not exceed a maximum of $550,440.

* The new mortgage will be no more than 90 percent of the new appraised value including any financed Upfront Mortgage Insurance Premium.

* The Upfront Mortgage Insurance Premium is 3 percent and the Annual Mortgage Insurance Premium is 1.5 percent.

* The holders of existing mortgage liens must waive all prepayment penalties and late payment fees.

* The existing first mortgage must accept the proceeds of the HOPE for Homeowners loan as full settlement of all outstanding indebtedness.

* Existing subordinate lenders must release their outstanding mortgage liens.

* Standard FHA policy regarding closing costs applies, and they may be:
o Financed into the new loan provided the value of the mortgage (including the Upfront Mortgage Insurance Premium) does not exceed 90 percent of the new appraised value of the home.
o Paid from the borrowers’ own assets.
o Paid by the servicing lender or third party (e.g., federal, state, or local program).
o Paid by the originating lender through premium pricing.

* The borrower must agree to share with FHA both the equity created at the beginning of this new mortgage and any future appreciation in the value of the home.

* The borrower cannot take out a second mortgage for the first five years of the loan, except under certain circumstances for emergency repairs.

The lender will disclose to the homeowner the benefits of the program including home retention, a new affordable mortgage based on the current appraised value, and 10 percent equity. The lender will also explain the prohibition against new junior liens against the property unless directly related to property maintenance, and a minimum of 50 percent equity and appreciation sharing with the Federal government.

The costs to the homeowner include the upfront and annual insurance premiums, as well as a share of the equity created by the write-down associated with the HOPE for Homeowners mortgage and any future appreciation in the value of the home. At settlement, subordinate lien holders will receive a certificate that evidences their interest as an obligation backed by HUD, with payment conditional on the value of HUD’s appreciation share.

If the home is sold or refinanced, the homeowner will share the equity with FHA on a sliding scale ranging from a 100 percent FHA share after the first year to a minimum of 50 percent after five years. The lien holder that previously held the highest priority will receive payment up to a proportion of its original interest, not to exceed the amount of available appreciation. This type of delayed payoff will take place until all prior lien holders are satisfied or the amount of available appreciation is exhausted. All remaining appreciation is remitted to FHA.

The HOPE for Homeowners Board of Directors includes HUD Secretary Steve Preston, Treasury Secretary Henry Paulson, Federal Reserve Board Chairman Ben Bernanke, and FDIC Chairman Sheila Bair. They have named the following people to serve on the board as their designees: FHA Commissioner and Chairman of the Board Brian Montgomery, Federal Reserve Board Governor Elizabeth Duke, Treasury Assistant Secretary for Economic Policy Phillip Swagel, and Federal Deposit Insurance Corporation Director Tom Curry.

The Democrats succeeded in getting some items in the new big bailout bill designed to help struggling homeowners. Here is a paragraph from the summary page of the proposed bill:

II. Homeownership Preservation

EESA requires the Treasury to modify troubled loans – many the result of predatory lending practices – wherever possible to help American families keep their homes. It also directs other federal agencies to modify loans that they own or control. Finally, it improves the HOPE for Homeowners program by expanding eligibility and increasing the tools available to the Department of Housing and Urban Development to help more families keep their homes.

That sounds like good news. The government is about to buy a lot of mortgages so they ought to have some say about who gets to participate in the new HOPE loans right? Here are some more details from the section by section summary page. These are the section headers of most interest here:

Section 109. Foreclosure Mitigation Efforts.
For mortgages and mortgage-backed securities acquired through TARP, the Secretary must implement a plan to mitigate foreclosures and to encourage servicers of mortgages to modify loans through Hope for Homeowners and other programs. Allows the Secretary to use loan guarantees and credit enhancement to avoid foreclosures. Requires the Secretary to coordinate with other federal entities that hold troubled assets in order to identify opportunities to modify loans, considering net present value to the taxpayer.

Section 110. Assistance to Homeowners.
Requires federal entities that hold mortgages and mortgage-backed securities, including the Federal Housing Finance Agency, the FDIC, and the Federal Reserve to develop plans to minimize foreclosures. Requires federal entities to work with servicers to encourage loan modifications, considering net present value to the taxpayer.

Section 124. Hope for Homeowners Amendments.
Strengthens the Hope for Homeowners program to increase eligibility and improve the tools available to prevent foreclosures.

Finally, here is a link to the actual 110 page bill. And here are some relevant quotes from the document that could become law as soon as this Wednesday.

SEC. 109. FORECLOSURE MITIGATION EFFORTS.
2 (a) RESIDENTIAL MORTGAGE LOAN SERVICING
3 STANDARDS.—To the extent that the Secretary acquires
4 mortgages, mortgage backed securities, and other assets
5 secured by residential real estate, including multifamily
6 housing, the Secretary shall implement a plan that seeks
7 to maximize assistance for homeowners and use the au8
thority of the Secretary to encourage the servicers of the
9 underlying mortgages, considering net present value to the
10 taxpayer, to take advantage of the HOPE for Home11
owners Program under section 257 of the National Hous12
ing Act or other available programs to minimize fore13
closures.

SEC. 110. ASSISTANCE TO HOMEOWNERS.
(1) IN GENERAL.—To the extent that the Fed2
eral property manager holds, owns, or controls mort3
gages, mortgage backed securities, and other assets
4 secured by residential real estate, including multi5
family housing, the Federal property manager shall
6 implement a plan that seeks to maximize assistance
7 for homeowners and use its authority to encourage
8 the servicers of the underlying mortgages, and con9
sidering net present value to the taxpayer, to take
10 advantage of the HOPE for Homeowners Program
11 under section 257 of the National Housing Act or
12 other available programs to minimize foreclosures.

The last one is a little hard understand but the upshot is that the new act is loosening the standards for the Hope For Homeowners loans (aka HOPE loans, aka FHA short refinances).

See these changes in the context of the existing law here.

It looks like an agreement has been reached on the massive financial bailout and there are reportedly stipulations in the bill that are designed to help struggling homeowners. Details are not yet released but we get this from the recent AP article on the topic:

To help struggling homeowners, the plan would require the government to try renegotiating the bad mortgages it acquires with the aim of lowering borrowers’ monthly payments so they can keep their homes.

But Democrats surrendered other cherished goals: letting judges rewrite bankrupt homeowners’ mortgages and steering any profits gained toward an affordable housing fund.

See this this Op-Ed over at the New York Times. The writer has what seems to be a pretty good idea. He says the government could help out most by reducing interest rates and making it easier for people to buy homes or refinance mortgages. That would in turn slow the massive slide in housing prices. Here is a quote:

The government is in a great position to cut rates by about a point: Through Fannie Mae, Freddie Mac and the Federal Housing Administration, it now controls nearly 90 percent of all mortgage originations. These lower rates would apply to most home buyers who take out a loan under $729,750 for a house that they will live in.

Along with lower rates, the government should provide temporary down-payment assistance for buyers. The government could, for example, match the amount of money that buyers use for a down payment, up to $15,000. Because the government now controls the bulk of all mortgage financing, this money could be provided directly at closing. Homeowners who refinance their current mortgages could also receive assistance, allowing them to avoid foreclosure.

Programs like these would draw buyers into the housing market and reduce the backlog of unsold and vacant homes. Investors and speculators would be ineligible and would face the full cost of their mistakes.

By stabilizing house prices, these programs would benefit the bulk of Americans, who own a home but did not get involved in the subprime mortgage market. Price stability would more directly achieve the goals of the Wall Street bailout: increase the value of mortgage-backed securities (by increasing the value of the underlying houses) while injecting government capital into the financial system.

There was a good article over at Inman.com the other day that discussed the direct effects the planned massive Wall Street and financial bailout might have on Main Street. Here are some good quotes from the article:

Once taxpayers are in charge of these assets, will troubled borrowers be more likely to get loan modifications or workouts to keep them in their homes? If the government becomes the owner of hundreds of thousands of foreclosed homes, will it sell them quickly at fire-sale prices to investors, or more gradually over time to earn a better return?

While there is general agreement that the government must take action to keep the financial system functioning, the question then becomes: What happens next?

“You save the banking system, now what are you going to do with all this distressed property?” said Dennis Hedlund, president and founder of the mortgage market forecasting firm iEmergent.

As detailed by Paulson, the plan envisions that the mortgage-related assets Treasury buys would be managed by private managers “to meet program objectives.”

If the government creates aggressive objectives to keep people in their homes — by forgiving some of the principal on their loans, for instance — “that could very quickly solve a lot of problems” in housing markets where prices continue to fall, Hedlund said. But that approach would mean larger losses up front, and perhaps a bigger bill for taxpayers in the long run.

“If the government does more modest workouts and hopes home values sort of correct themselves, there’s a danger home prices would continue to fall, and this could really stretch out,” Hedlund said. “It’s really a question of how fast do you want to get it over with? The faster you want to get it over with, the more the government will foot the bill, so there will be political pressure not to do that.”

We also get this:

In an e-mail to clients, K&L Gates attorney Larry Platt noted that Treasury has not spelled out any requirement to seek to preserve home ownership or otherwise deal with foreclosures and loss mitigation, “which is one of the biggest criticisms leveled at the plan by the Democrats. That doesn’t mean that Treasury will not implement an ambitious loan modification program; it just means that (as proposed Saturday) Treasury does not have to do so.”

…

Democrats will also push for looser criteria for the Federal Housing Administration’s HOPE for Homeowners loan guarantee program, which was authorized at $300 billion in HR 3221.

While we are waiting to learn more details from the government and from the banks about HOPE loans (aka FHA short refis), it is worth pointing out that one type of loan can currently be refinanced even when the homeowner is upside down, or in other words, even when the homeowner owes more on the home than the current value. This applies if your current loan is an FHA loan.

The program is called FHA Streamlining and here are the requirements for upside down homeowners or any other current FHA loan holder:

– You must have remained on time with your mortgage payments
– The new loan must be at a lower rate than the old loan
– You cannot take any cash out

See here at the HUD site for more info on FHA Streamlines. The beauty of an FHA to FHA Streamline loan is that there is no credit score requirement and no requirement for an appraisal. That is what makes refinancing possible even when home values in any given area have dropped dramatically.

If you owe more than your home is worth and you have an FHA loan currently contact us today and we’ll see about improving your loan terms.

No one knows for sure what this means but reports this morning are that the Bush administration agreed to the demands of the Democrats that the massive $700 billion bailout will include provisions to help homeowners prevent foreclosure (somehow…). Here is an excerpt from the AP article:

WASHINGTON – A key Democrat negotiating a $700 billion financial bailout says the Bush administration has agreed to include mortgage aid and strong congressional oversight in the plan.

Rep. Barney Frank, the Financial Services Committee chairman, says a great deal of progress has been made in talks between lawmakers and President Bush’s team on the rescue.

A government official with knowledge of the talks also said the administration has agreed to create a plan to help prevent foreclosures on mortgages it acquires as part of the bailout.

The federal government saw the writing on this week and decided that if it does not step in to help the financial sector in the US the entire economy could come to a grinding halt and plunge the US into a depression. The solution proposed centers around the government buying up something like $700 billion worth of undesirable bundled securities made up of all kinds of mortgages that may or may not ever get paid. The basic idea is that if the banks can be relieved of this burden the whole financial system will start working again. That means loans will become easier to get again which will lead to more home buyers again which will prop up housing prices again, etc. Most experts agree that dramatic action like this is needed. The idea seems to be that the dangers associated with the US falling into an economic depression more than offset the risks of this sort of bailout.

Both the Republicans and Democrats are on board with the general idea, but the Democrats are working hard to be sure the richer don’t get richer as a result of this action. Here are a few interesting quotes from a recent Bloomberg article:

U.S. Democratic lawmakers said they would act quickly on a $700 billion rescue plan for financial companies, while demanding that the legislation limit compensation for executives of companies that will benefit. …

“I know of nobody who is arguing over the amount of money or even about that the secretary ought to have the authority to purchase these toxic instruments, these bad debts,” said Senator Christopher Dodd, the Democratic chairman of the Banking Committee.

Still, Democrats said they would seek changes, including limiting executive compensation and offering new help to homeowners struggling to avoid foreclosure. …

“This is not a position where I like to see the taxpayer, but it is far better than the alternative,” Paulson said on NBC’s “Meet the Press.” …

Frank said it would be a “grave mistake” not to include a executive pay provision, while Paulson called such a measure “punitive.” …

As has been the norm with these recent volatile events, there are numerous details that have yet to emerge with all of this. It is possible that the new situation will help more upside down homeowners refinance into FHA short refi loans than before. Whatever the case, things are looking brighter for homeowners in trouble than they looked just a week ago. We’ll keep you posted on new developments.

There was an excellent article over at HousingWire.com on the recent congressional hearing with lenders about the Hope For Homeowners program that is set to launch in less than two weeks. While lenders are not jumping for joy over the prospect of writing off millions of dollars of debts indications are that they will use the program when it is the best remaining option. But they are still waiting on the FHA to release more details and guidelines before they can set their policies. Here is a quote from HUD commissioner Brian Montgomery in the article:

Part of servicers’ hesitance to provide details may be due to a lack of details surrounding the program specifics; it’s tough to say who will qualify when you don’t know what the standards will be. HUD commissioner Brian Montgomery, however, assured Congress that everything would be in place in time.

“First and foremost, we want to assure you that we are firmly committed to having the program up and running by October 1, 2008, and believe this goal is achievable,” Montgomery said to open his testimony on Wednesday.

The good news is that part of the delay seems to be that HUD is trying to figure out a way to get 2nd mortgages in on the act so they will not block the program entirely. Right now most 2nd mortgages stand to lose everything with a HOPE loan so they have no incentive to allow for the refinance.

HUD’s Montgomery also alluded to perhaps the program’s largest sticking point: second liens. “One of the greatest challenges to successful loan modifications is obtaining the consent of all existing lien holders, including the holders of junior mortgages,” he said. He suggested HUD was close to proposing rules under the HFH program that would have second lien holders share in the government’s interest in the property.

There are clearly some hurdles to overcome there but with any luck the folks at HUD will concoct a win-win program.

Not surprisingly, Montgomery also noted that the HOPE loans will have a higher interest rates than traditional FHA loans.