The basic principles for Hope Now; a program overseen by a board made up of Secretary of HUD, Secretary of Treasury, Chairman of the Federal Reserve Board and the Chairman of the Federal Deposit Insurance Corp; were that: Lender permission needed for the program to work; Lender to take a "short pay" and FHA buys the current loan at 90% of market value; Original owner to share future equity gains with FHA; Homeowner to pay for FHA insurance 3% upfront and 1.5% per year; payments adjusted to borrower's ability, including interest rates to get a 31% payment to gross income level for first five years; and new loans must be 30 year fixed. Eligibility for the program: Only owner occupants, only those who cannot afford their payment- in excess of 31% gross income, only those willing to sign that they have not intentionally fallen behind just to qualify for program; those willing to sign that they did not lie on their original loan application (humm... were they not called "liar loans" for a reason??) Only those willing to have their income verified by the IRS, only situations where the first loan is the only remaining loan (gotta get rid of those 2nds, HELOCs, 3rd's first). The program is a $300 Billion (with a B) expected (used very lightly here..) to help 400,000 homeowners.
December 15, 2008 Hope Now said: "Hope Now coordinates a nationwide campaign to reach homeowners who may be at risk of losing their homes. So far, Hope Now has sent almost 1.9 million letters. Almost 17% of the homeowners receiving the Hope Now letters have contacted their servicer."
They have also said, "Our efforts to streamline the foreclosure prevention process are clearly working. Hope Now members are helping more homeowners avoid foreclosures than ever before." I guess helping more homeowners than ever before can easily be quantified by Hope Now when the 'before' number was zero. But, here's the kicker-
HUD Secretary Steve Preston says, "The government's loan modification program is a dismal failure, and Congress is to blame." Hope Now, previously lauded as the centerpiece of economic recovery, was supposed to modify the loans of 400,000 homeowners and help them avoid foreclosure. Instead, it's only helped 312 homeowners since it was launched in October." So the government program mails out 1.9 Million mailers, 323,000 homeowners respond, and a dismal 312 get help. Proof positive that the government is NOT the answer to our problems.
Michael King, the author of 'Loan Mod Program Failing Badly" states; Borrowers must pay high interest rates and fees, including 3% upfront insurance premium and 1.5% yearly premium. They have to provide two years of financial records and sign a statement that they didn't give false information on their first loan application. Those requirements could be impossible to meet for many stated-income borrowers.
Dec. 15, 2008- this modification program was modified in 'hopes' that the Hope Now program would benefit more homeowners.
Increased the loan to value ratio (LTV) from 90% to 96.5% (let's see; most homes were purchased with 100% financing and on top of that have lost about 30% of their value since- so somebody's gotta okay a write off worth a chunk of change)
Permit upfront payments to lien holders (buying second mortgages from banks)
Extend the mortgage terms from 30 years to 40 years, creating the possibility that the reduction of the borrower's monthly payment would make it possible for them to qualify.
The Streamlined Mortgage Modification Plan: Start date of Dec. 15, 2008
Borrower must be 60 days late, cannot be in bankruptcy.
owner occupied single family residence
Current LTV must exceed 90% of property current value and the goal is to reduce the payment at least 10%
New payment cannot exceed 38% of the owner's gross income. (Keep in mind that the loan amount v.s your income must make sense at that 38%- If it doesn't-- 99.9% of the time the lender will say you don't qualify; not "we'll lower the loan balance!!)
The lowest interest rate the program can go is 3% for five years and whatever the reduced starting interest rate is,it adjusts up 1% per year starting year six. This continues until the "Cap the life of loan" is reached from the original loan terms.
The borrower must supply a hardship letter stating current situation and financial circumstances. All income will be verified.
If borrower qualifies, all foreclosure fees, back interest, late taxes and insurance can be added to the principal.
The REAL lender goal: All modifications must net the lender more than the foreclosure process would or the modification won't be done. So much for Hope for the Homeowner- since its ultimately "if it's in the lender's best interest".
How is the modification process working? Defaulted mortgages lucky enough to get modified are going back into default within six months 53% of the time. WOW. After three months nearly 36% of borrowers had re-defaulted, and after 8 months the number rose to 58%. Perfect reasoning to assume that close to 60% of borrowers should never have owned a house in the price range they purchased in the first place- IF they should have even been a homeowner at all. This seems to be a tough pill for some homeowners to swallow. Seeing how it was soooo easy to qualify to purchase a house they NEVER should have been able to purchase in the first place; they cannot see the logic in letting go of a house that has (in the case of So. Cal. homes) over $100,000 in negative equity that will take in my estimation over 10 years to recover. Sure makes more sense to short sell the house, wait two years until your credit allows another government backed loan and purchase an affordable house with FHA financing at a modest 3.5% down; which should be fairly easy to save when you aren't spending over 60% of your income on a house that isn't worth near what you paid for it in a disillusioned frenzy of buyers who thought they'd be forever priced out of the market. Look on the bright side. The housing costs are now almost near where they make sense! Jump out and get back in at the right price.