Despite the good intentions of the June Stimulus Package designed to help at least some troubled home loan borrowers, results have been deplorable. Few to no lenders signed up for the voluntary program, Hope for Homeowners. Not much help there…Why not? Well, lenders stood to lose too much as they were required to write down loans to 90% of current market value and give over any future appreciation in equity to the U.S. government.
Recently, though HUD has announced changes to the program which might make it more palatable to lenders and provide relief for anxious homeowners, caught in a spiral of falling home values and a worsening economy. For one thing, the lenders could write down to 96.5% of current market value which is the FHA standard rather than 90%, saving them over 5%.
HUD also cautioned that lenders holding second loans or equity lines must not block the transaction and would receive “immediate payment”. This removes a significant obstacle faced by many homeowners attempting to modify or redo their mortgages.
So, who is eligible for the refurbished program? Borrowers who are spending at least 31% of their pretax income on their mortgages have a good chance of participating. Borrowers who spend more will need to have at least 10% equity in order to be considered.
Some of the benefits for homeownerwho qualify include, in many cases, a new mortgage with a balance roughly 30% to 50% less than previous and/or a lower rate. To offer lower payments, lenders can now extend the mortgage to a 40 year term. Payments will be lower, but, of course, over the life of the loan borrowers will pay more interest. This hardly makes much difference anyway as borrowers typically refinance or sell the home within a few years.
Anyone interested in this program can contact me at 626-641-0346.