The HOPE for Homeowners Act of 2008

"This is the worst housing crisis of our lifetime, and we're in a recession as a result of it," said Senator Chris Dodd (D-CT), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, the author of the legislation. "Property values decline sharply when a home in the neighborhood is foreclosed upon. In order to stabilize neighborhoods, we must take actions to prevent foreclosures. This proposal will help provide much-needed relief for people on the brink of foreclosure, keeping families in their houses and neighborhoods financially stable."

Homeowners struggling to avoid foreclosure have a potential new lifeline: Hope for Homeowners, outlined yesterday by the Department of Housing and Urban Development to allow strapped borrowers to refinance their mortgages into federally insured lower-rate, 30-year fixed loans. HOPE for Homeowners is the Department of Housing and Urban Development's new mortgage insurance program.

The new insurance, offered through the Federal Housing Administration (FHA), will allow qualifying homeowners to refinance with fixed-rate mortgages, said Brian Sullivan, who works for HUD in Washington, D.C. HOPE for Homeowners Act of 2008 is part of the Housing and Economic Recovery Act. It begins on October 1, 2008 and ends in September 2011. The Federal Housing Administration (FHA) would insure the program up to $300 billion.

Under the HOPE for Homeowners Act of 2008, new mortgages that are offered by FHA-approved lenders will refinance abusive loans at a significant discount for homeowners facing difficulty meeting their mortgage payments.  The HOPE for Homeowners act will make it possible for certain homeowners to refinance their existing mortgages with a 30-year, fixed-rate FHA loan of up to 90% of their home's value.

Eligible homeowners are those who originated their loans before January 1, 2008, spend more than 31% of their monthly income on their mortgage, and are currently in danger of foreclosure. Borrowers are also required to have made six months of payments on their loans in order to qualify for this loan.

Important Notes:

  • The program is completely voluntary. The decision on whether to write such a loan remains up to banks, which would have to be willing to take a loss on the existing loans in exchange for avoiding an often-costly foreclosure.
  • If you sell your home after you refinance, you will have to split the equity earnings with the FHA, on a sliding scale basis.

HOPE for Homeowners comes at a time when Wall Street financial institutions are taking huge hits because of their investments in mortgage-backed securities. Many in the housing industry say the law won't have much impact on the foreclosure rate because lenders are not obligated to participate in the program. However, there is a way to better encourage the lender to accept the program:

"Be proactive early if you're getting in trouble," says mortgage broker Drew Sakson. "Be extremely proactive, and be very early. If you can see that you're not going to be able to make a payment, call them first."


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