FHA recently announced revions to their Hope for Homeowner product that is designed to offer “short refinance” loans to distressed homeowners fighting to stop foreclosure.

o    Write-Down: Participating FHA mortgage lenders must agree to a reduction in principal to achieve the 9 % loan-to-value requirement.

o    Prepayment penalties and fees related to default or delinquency must also be waived for this loan modification program.

o    Premiums: Lenders must pay the 3% upfront premium from the proceeds of the refinance. Borrower pays 1.5% premium annually.

o    Shared Appreciation and Equity: Borrower must share newly created equity with FHA when the property is sold or the loan is refinanced. FHA’s share in the equity is reduced from 100% to 50% in 10 % increments over first five years. After five years, the homeowner and government each will share in 50 % of the equity. Borrowers must also share any future appreciation 50/50 with FHA upon the sale of the property. The program’s governing Board will establish standards for sharing future appreciation owed to HUD with second mortgage holders.

o    The FHA Hope for Homeowner refinance program runs from October 1, 2008 through September 30, 2011.

o    Servicer Liability: Amends the Truth in Lending Act (TILA) to create a fiduciary duty for mortgage servicers to “maximize the net present value of the pooled mortgages in an investment to all investors and parties having a direct or indirect interest.” The duty does not supersede servicing contracts. It also would deem servicers to act in the best interests of all investors if the servicer implements a refinance or modifies a loan through the HOPE for Homeowners plan.

QUESTION: How soon can we anticipate the Hope for Homeowner program to be up and running with FHA home loans?

ANSWER:  FHA will be working with a Board established under the law to make the program operational and issue guidance by October 1, 2008. FHA’s ongoing program, FHA Secure Refinance continues to help with a loan program designed for refinancing homeowners who are struggling since their adjustable rate mortgage reset.