Real Estate Finance Alerts

The New Housing Bill - Hope For Homeowners Program - In Simple Terms

President Bush said he plans to sign the housing rescue bill, referred to by some as the housing bailout bill. The bill, as passed by the Senate and House of Representatives, creates a voluntary FHA loan insurance program for homeowners facing foreclosure to refinance their primary residence mortgage. The goal is to provide additional options for homeowners and lenders to avoid foreclosure on delinquent mortgages.

Essentially, the lender agrees to reduce the remaining principle balance and forgive all prepayment penalties and default/delinquency fees in exchange for the FHA insurance to guarantee the loan. For the opportunity to keep their home, homeowners must agree to share future appreciation in the home and must refinance their loan to a fixed rate loan of 30+ years without any second loans for the next 5 years. The result is that the borrower can keep their home and the lender does not have the expense of the foreclosure.

To be eligible, homeowners must:

• Be unable to make the payments of the existing loan
• Not intentionally default on the existing mortgage
• Not knowingly committed fraud to obtaining the existing mortgage
• Have a debt to income ratio greater than 31 percent
• Have never been convicted of fraud
• Have no ownership interest in any other residence
• Have a maximum Loan To Value Ratio 90% based on the current value

Homeowners share any future appreciation in the home upon sale or refinance. The appreciation split changes based on the length of time since the refinance to any sale or refinance. The following table details the percentage for the FHA and the percentage for the Owner.

Time of Sale or Refinance – FHA/Owner Percentage

1 year or less – 100/0

1 to 2 years – 90/10

2 to 3 years – 80/20

3 to 4 years – 70/30

4 to 5 years – 60/40

5 years or more – 50/50

The bill does not offer loans for the purchase of new property and does not apply to second homes or rental property. In addition, it does not help those who are struggling, but current on their mortgage. If you are struggling with your mortgage, you should look at all other options because this is not a good option for most people. It is a last resort if you can qualify for the new loan.

If you have questions, please don't hesitate to contact me at 303.758.7402 or todd@toddhuettner.com. There's no cost for advice and, if you decide to move forward with a loan, you won't be charged any up-front fees.

About the Author

Todd Huettner is President of Huettner Capital, a residential and commercial real estate financing broker. He specializes in complex transactions, multiple properties, wealth management, and divorce related issues. In addition to an M.B.A, Todd has over fifteen years experience in the finance, mortgage, and real estate industries.

You can reach Todd at 303-758-7402 or todd@toddhuettner.com.