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| Guidelines have been issued for refinancing delinquent and current exotic loans using a government-insured program created under the recently passed housing legislation. Lenders that utilize the program will be held accountable for fraudulent appraisals.
The HOPE for Homeowners Program has been authorized under the National Housing Act, which was amended as part of the Housing and Economic Recovery Act of 2008, the Department of Housing and Urban Development said in Mortgagee Letter 2008-29. Current and delinquent borrowers who have made at least six payments on their first mortgages can refinance into 30-year fixed-rate loans using the FHA program. The debt-to-income ratio based on just the existing mortgage payment must be higher than 31 percent, while the original loan must have been originated on or before Jan. 1, 2008. Payment-to-income and debt-to-income ratios are respectively limited to 31 percent and 43 percent, though they can go as high as 38 percent and 50 percent following a successful 3-month trial modification prior to the H4H application. The maximum H4H loan amount is $550,440, and the loan-to-value is limited to 90 percent. Origination fees are capped at 1 percent, and there is no requirement for borrowers themselves to pay closing costs and prepaid items. Only owner-occupied loans on 1-unit properties will be considered. The properties must be appraised by an FHA-approved appraiser specifically for the H4H transaction. The appraisal cannot be more than 3 months old at closing. “Lenders are reminded that, if the appraiser they select provides a poor or fraudulent appraisal that leads FHA to insure a mortgage at an inflated amount, the lender is held equally responsible with the appraiser for the violation if the lender knew or should have known of the defects or the fraud in the appraisal,” HUD’s letter said. “Lenders accept responsibility, equally with appraisers for the integrity, accuracy and thoroughness of the appraisal submitted to FHA for mortgage insurance purposes.” The program is open to borrowers who have government loans and conventional prime, Alt-A and subprime loans. Mortgages being refinanced include interest-only, payment-option, negative amortization and other exotic programs. A state or federal fraud conviction during the past 10 years will disqualify a borrower for H4H. HUD will retain an equity interest in properties securing H4H loans through shared-equity notes. The agency gets half of future appreciation when the property is eventually sold. Subordinate mortgages must waive all prepayment penalties and late payment fees and release their outstanding liens. In return, they would also share in equity appreciation as long as their write-off amount was at least $2,500. New subordinate financing will be unavailable for five years except when used to preserve and protect the property. HOPE for Homeowners consumer disclosure and certification forms are required at the time of initial loan application. The upfront mortgage insurance premium will be 3.0 percent of the base loan amount, and the annual premium will be 1.50 percent. First-payment defaults would disqualify FHA insurance benefits unless the first payment is made within 120 days. |
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