The Obama Administration on Wednesday signed a bill that attempts to inject some hope into the housing rescue program–called Hope for Homeowners.
The original program asked banks to reduce mortgage balances voluntarily to 90 percent of a home’s current market value. The loan would then be refinanced into an FHA mortgage.
The program didn’t work because it forced lenders to sell short with no chance of an upside, says Tom Kelly, a spokesman for JP Morgan Chase.
The new version of Hope sweetens the pot by paying lenders $1,000 for every Hope-refinanced loan and easing the amount they have to write off by allowing loans of up to 93 percent of the market value.
But the most important change is that it allows the U.S. Department of Housing and Urban Development, FHA’s parent agency, to share home-price appreciation with investors, up to the appraised value of the property when the existing loan was first issued.
This bill originally included cramdown legislation that would have allowed bankruptcy judges to modify the first mortgage, but that portion of the legislation was defeated in the Senate.
Source: CNNMoney, Les Christie (05/20/2009)
I was hoping this might happen. FHA may be coming to the rescue. There is a big void out there now for customers with sub-standard credit scores that cannot qualify for conventional loans. There are others that already own a home and have a loan but need help with the type of mortgage they used to purchase their current home. They may have one of those infamous conventional 2/28 loan programs where the rate can jump up to 12% after the first two years of the loan. The “2” represented the time bomb period and the “28” is the number of days they have until they lose their home.
Seriously, I would like to meet the person that invented the 2/28. I’m sure it was a Wall Street type, probably someone in their late 20s or early 30s that may have even originated loans for a few months before moving over to the investment world. Can you imagine maxing out your mortgage payment on an adjustable rate mortgage for $200,000 at 7.5% only to see your rate increase to 12.25% after two years. “But you can refinance the house after a year or so.” You have to wonder how many times some loan officer or real estate agent said that to the homebuyer.
But let’s move forward. The Senate passed an FHA modernization bill by a 93-1 vote today that will raise the FHA loan limit to $417,000 in high-cost areas and lowers the minimum down payment requirement to 1.5% from 3.0%. The House passed its version of the bill in September. So it could be law in early 2008. So help is on the way, along with Santa….
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