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HOPE for Homeowners Consumer Disclosure and Certification Form

 

FHA’s HOPE  for Homeowners Program:	U.S. Department of Housing and Urban Development Office of Housing Federal Housing Commissioner OMB Approval No. —–(Exp. ——-)
Understanding of Key Loan Restrictions

 

Loans made under the FHA’s HOPE for Homeowners Program have some special restrictions.  If you refinance your home through this program:

 

  1) You must share equity and future appreciation as described below.

  2) You cannot take out a second mortgage, home equity loan, or home equity line of credit for the first five years you have your new loan, except under certain circumstances for emergency repairs.

  3) You will pay an upfront mortgage insurance premium of 3% and a 1.5% annual mortgage insurance premium on the current principal balance of the new mortgage.  The annual premium will be included in your monthly payments.

 

 

If you refinance your home through this program you will not owe any payments, fees, penalties or other debt on your existing mortgage(s).

 

Equity and Appreciation Sharing Requirements

§    You agree to share both the initial equity created at the beginning of this mortgage and any future appreciation in the value of your home with FHA.  Initial equity is the difference between the appraised value of the home at the time of the new FHA loan and the original balance on your FHA mortgage.  Appreciation is the growth, if any, in the appraised value of the home between the time you take out the FHA mortgage and the time you sell your home.

 

§    You will share the newly created equity with FHA, if you sell or refinance your home, as follows:

 

During year 1              100% of the initial equity is paid to FHA

During year 2              90% of the initial equity is paid to FHA

During year 3              80% of the initial equity is paid to FHA

During year 4              70% of the initial equity is paid to FHA

During year 5              60% of the initial equity is paid to FHA

After year 5                  50% of the initial equity is paid to FHA

 

§    When you sell your home, you will also share with FHA one half (50%) of any appreciation created since the time you took out this loan.

 

§    For an example of how this works, see the “Example of How Equity and Appreciation Are Shared.”

 

 

HOPE for Homeowners

Example of How Equity and Appreciation Are Shared

 

This is an example of how the unique equity and appreciation sharing elements of this program work.  Keep in mind that this is only one example, and your actual experience will depend on many things, including how much your home increases or decreases in value.  Additional examples and details about how the equity and appreciation in your home is calculated can be found at www.hud.gov.

 

1.      Let’s say your home has an appraised value at the time you receive your FHA mortgage of………….	$200,000.
2.      And your mortgage is 90% of this, or……….	$180,000.
3.      This means the initial equity is the difference between 1 and 2, or………………………………..	$20,000.

                       

In this example, you and the FHA share this $20,000 when you sell your home or refinance your loan.  Here’s how that $20,000 would be split:

 

If you sell or refinance:

 

During Year 1	FHA receives 100%, or	$20,000	You receive 0%, or	$0
During Year 2	FHA receives 90%, or	$18,000	You receive 10%, or	$2,000
During Year 3	FHA receives 80%, or	$16,000	You receive 20%, or	$4,000
During Year 4	FHA receives 70%, or	$14,000	You receive 30%, or	$6,000
During Year 5	FHA receives 60%, or	$12,000	You receive 40%, or	$8,000
After Year 5	FHA receives 50%, or	$10,000	You receive 50%, or	$10,000

 

In addition to this equity sharing, you will have to share any future home price appreciation with the FHA.  This means that, if your home has gone up in value between the time you receive your FHA mortgage and the time of your home sale (or other disposition), you will share the amount of this increase with the FHA (less closing costs and a portion of any improvements you have made).  This is a 50/50 split that does not change over time.  For example if[1]:

1.      The value of your home when you take out this loan is…………………………………………….	$200,000
2.      After some years, you decide to sell.  Now the home is worth……………………………………	$250,000
3.      That means the appreciation is the difference between 1 and 2, or………………………………	$50,000

In this example, you would keep half of this, or $25,000.  The FHA would also receive half, which is also $25,000.

Again, keep in mind that this is just one example, and your actual experience will vary depending on factors such as:  How much your home is worth when you get a new HOPE for Homeowners loan, how long you stay in your home, and how much your home is worth when you sell.

HOPE for Homeowners

NOTE: Homeowners, contact your existing lender and/or a new lender to discuss how you may qualify for the H4H program.

The HOPE for Homeowners (H4H) program was created by Congress to help those at risk of default and foreclosure refinance into more affordable, sustainable loans. H4H is an additional mortgage option designed to keep borrowers in their homes.

The program is effective from October 1, 2008 to September 30, 2011.

As many as 400,000 homeowners could avoid foreclosure through this program over the next three years. If you are having trouble making your mortgage payments, HOPE for Homeowners may be able to help you, by refinancing your loan into a new 30-year or 40-year fixed-rate loan with lower payments.

How the Program Works

There are four ways that a distressed homeowner could pursue participation in the HOPE for Homeowners program:

1.       Homeowners may contact their existing lender and/or a new lender to discuss how to qualify and their eligibility for this program.
 

2.       Servicers working with troubled homeowners may determine that the best solution for avoiding foreclosure is to refinance the homeowner into a HOPE for Homeowners loan.
 

3.       Originating lenders who are looking for ways to refinance potential customers out from under their high-cost loans and/or who are willing to work with servicers to assist distressed homeowners.
 

4.       Counselors who are working with troubled homeowners and their lenders to reach a mutually agreeable solution for avoiding foreclosure.
 

It is envisioned that the primary way homeowners will initially participate in this program is through the servicing lender on their existing mortgage.  Servicers that do not have an underwriting component to their mortgage operations will partner with an FHA-approved lender that does. 

Step 1:  Cost-Benefit Analysis

Lender considerations: 

Given their fiduciary responsibilities and financial obligations, lenders will assess their portfolio and perform a cost-benefit analysis to determine the feasibility of offering this program to struggling homeowners. 

1.       Affordability versus value:  lenders will take a loss on the difference between the existing obligations and the new loan, which is set at 96.5 percent of current appraised value.  The lender may choose to provide homeowners with an affordable monthly mortgage payment through a loan modification rather than accepting the losses associated with declining property values.

2.       Borrower eligibility:  Lenders that determine the H4H program is a feasible and effective option for mitigating losses will assess the homeowner’s eligibility for the program:

•  
  • The existing mortgage was originated on or before January 1, 2008;
  • Existing mortgage payment(s) as of March 1, 2008 exceeds 31 percent of the borrowers gross monthly income;
  • The homeowner did not intentionally default, does not have an ownership interest in other residential real estate and has not been convicted of fraud in the last 10 years under Federal and state law; and
  • The homeowner did not provide materially false information (e.g., lied about income) to obtain the mortgage that is being refinanced into the H4H mortgage.

Consumer considerations:

The lender will disclose to the homeowner the benefits of the program:

• Home retention,
• New affordable mortgage based on current appraised value,
• 3.5 percent equity

The lender will also disclose to the homeowner the costs of the program:

• 3 percent upfront mortgage insurance premium and a 1.5 percent annual premium,
• Equity and appreciation sharing with the Federal government, and
• Prohibition against new junior liens against the property unless they are directly related to property maintenance.

Step 2:  Negotiations Between Borrowers and Lien Holders

If the lender refinancing the loan does not hold the senior mortgage lien, it will need to secure an agreement from the existing lien holder to waive all prepayment penalties and default fees on the existing loan and accept the loan proceeds from the H4H loan as payment in full.  The loan amount (including the 3 percent UFMIP) for the new H4H loan cannot exceed 96.5 percent of the current appraised value of the property.

The lender will engage existing subordinate mortgage lien holders to extinguish all subordinate liens on the subject property.  To entice subordinate lien holders to participate in the negotiation process and release their liens, FHA has the authority to share its future appreciation entitlement with them.

Step 3:  Originating an H4H Mortgage

The lender will qualify the homeowner for the new H4H mortgage using the guidelines established under the terms of the program’s unique statutory requirements, ensuring the homeowner has the capacity to make the new payment on the H4H mortgage in a timely manner.

During underwriting of the loan, the lender will calculate the future appreciation interest amount for each subordinate lien holder in accordance with instructions provided by FHA.

At settlement, subordinate lien holders will receive a certificate that evidences their interest as an obligation backed by HUD, with payment conditional on the value of HUD’s appreciation share.

Following funding of the loan the lender will record – in addition to the typical security instrument and note for the first mortgage – a shared equity note and mortgage (SEM) and a shared appreciation note and mortgage (SAM).  These mortgages will be serviced by FHA.

The lender will also submit the new mortgage for insurance to FHA, certifying that it has been originated, underwritten and closed in accordance with the H4H program guidelines.

Step 4:  Fulfilling H4H Mortgage Obligations

Upon sale of the property, the homeowner will use their sale proceeds to pay off the H4H mortgage as well as the shared equity and shared appreciation mortgages.

FHA will provide instructions to the settlement agents regarding subordinate lien holders who are entitled to a portion of any appreciation.  The lien holder that previously held the highest priority will receive payment up to the full dollar amount of its interest, not to exceed the amount of available appreciation, and so on, until all prior lien holders are satisfied or the amount of available appreciation is exhausted.  All remaining appreciation is remitted to FHA.

In instances where the homeowner failed to make the first payment on their new H4H mortgage, the H4H statute prevents FHA from paying claim benefits to anyone holding the mortgage.