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H4H Gets Better

LTVs raised, immediate junior lien payments allowed

November 19, 2008

By MortgageDaily.com staff


The government's program to refinance delinquent mortgages into affordable government-insured loans has been enhanced. Among the improvements are increased loan-to-values, extended loan terms and immediate compensation for junior lienholders.

The maximum LTV on the HOPE for Homeowners program has been raised to 96.5 percent, the U.S. Department of Housing and Urban Development announced today. The LTV was previously limited to 90 percent, an October mortgagee letter from HUD said.

The higher LTV is available only when mortgage payments don't exceed 31 percent of monthly gross income. Including household debt, the debt-to-income ratio is limited to 43 percent.

The changes were approved by the H4H board -- which includes HUD Secretary Steve Preston, Treasury Secretary Henry Paulson, Federal Reserve Board Chairman Ben Bernanke and FDIC Chairman Sheila Bair. The board members have designated FHA Commissioner Brian Montgomery, Federal Reserve Board Governor Elizabeth Duke, Treasury Assistant Secretary for Economic Policy Phillip Swagel and FDIC Director Tom Curry to serve on their behalf.

In conjunction with the increase to LTVs, HUD said it would eliminate the previously required trial modification -- which it noted "was too complicated and required delicate negotiations among the existing lienholders."

In an effort to overcome obstacles created when a junior lien exists, HUD said it will permit payments to junior lienholders at the time the loan is originated in exchange for a release-of-lien.

Previously, junior lienholders were required to release their lien. If they wrote-off at least $2,500, they would qualify for a slice of equity appreciation in the property.

"Given the amount of time that would pass between the creation of the H4H and the ultimate sale of the home, as well as the tremendous market uncertainties, subordinate lienholders were not guaranteed any return at all," HUD said.

The Mortgage Bankers Association issued a statement saying, "By agreeing to immediately compensate subordinate lienholders, HUD is providing additional incentive for those lienholders to release their liens, which will free more borrowers to access the Hope for Homeowners Program."

Another change to the H4H program includes an extension of mortgage terms to 40 years from 30 years.

HUD said the changes will increase lender participation, drive down costs and help prevent more foreclosures. In addition, lower monthly payments and higher LTVs will expand the pool of eligible borrowers.

HUD added that qualifying mortgages must not have been originated prior to Jan. 1, borrowers must be unable to afford their current loans and can't own a second home, and they must have made at least six payments on the existing mortgage. Servicers are required to waive all prepayment penalties and late payment fees.

Any loan where mortgage fraud was involved is disqualified, and the borrowers cannot have not been convicted of fraud during the last 10 years.

The maximum H4H loan is $550,440. The up front mortgage insurance premium is 3.0 percent, while the annual rate is 1.5 percent. The program ends on Sept. 30, 2011.

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