Gradually, the government’s new programs aimed at mitigating the mortgage crisis are coming online. The latest one debuted October 1st. It’s called Help for Homeowners, and it is for those who have FHA mortgages. Note: only FHA mortgage holders are eligible for this one. FHA [Federal Housing Authority] loans are generally for first-time buyers.
Help for Homeonwers–October 1st marked the release of FHA’s Help for Homeowners program. This program allows homeowners who owe more than the value of their home to refinance into a 30-year-fixed loan. The best part is that a client’s loan balance will be reduced to 90% of the current value. So, if you owe $350,000 and the current value of your home is $300,000, your new loan will be $270,000. This is a very good deal.
Any excess will be required to be forgiven by the lender. In the above example, that would be $80,000 forgiven. Further, the FHA eliminates any subordinate liens and gives the lender a coupon. What does the homeowner give the FHA in return? The homeowner agrees to share a percentage of the future appreciation with FHA. FHA will use this appreciation equity when the home is sold to reimburse subordinate lienholders.
This is a fantastic program and will help many upside-down homeowners. Here in Southern California this wonderful program may not offer much help, though, for several reasons. Prices here were so high that FHA loan limits did not apply to most purchases. Also, so many easy-credit, no-money-down, stated-income loans were available that most borrowers bypassed the strict requirements of FHA. As a result, most SoCAl homeowners, newly-minted in the last 3 to 5 years, would not have FHA loans.