Who's Eligible?

Posted Jul 28, 2008 @ 8:02 pm,

Well, our illustrious leaders in Washington have finally passed the long awaited new housing bill (H.R. 3221 - Foreclosure Prevention Act of 2008). While we're not positive how much it will help the overall housing market (other than ensuring the GSE's won't fail), it is chock full of new regulations and sure to cost taxpayers millions of dollars. You can read about provisions included in it at - New Housing Bill Set to Become Law This Week.

Now that it's ready to become law, the questions are "who is eligible" and "what are the requirements" ailing homeowners must follow in order to take advantage of what the new bill has to offer. The following is a synopsis of the requirements that must be met.

Eligibility:

• Qualified borrowers must live in their homes and have loans that were issued between January 2005 and June 2007.
• Borrower's must have a debt-to-income ratio "above 31 percent" on the original loan to be eligible for the program.
• Borrowers can be up to date on their existing mortgage or in default, but they must prove that they can no longer keep paying their existing mortgage and attest they are not deliberately defaulting simply to obtain lower payments.
• Before borrowers can get the new FHA-backed mortgage, they must first payoff any other debts currently on their home - like a home equity loan or line of credit.
• To get a new home equity loan in the future, borrowers will need approval from the FHA first. Borrowers will not be permitted to take out another home equity loan for at least five years, unless it's to pay for necessary upkeep on the home. The total debt will not be allowed to exceed 95% of the home's appraised value.
• Borrowers can contact their current mortgage servicer or go directly to any FHA-approved lender for help. These lenders can be found on the HUD website at www.hud.gov. Note: The this new FHA loan program will become available October 1, 2008.

Lender Requirements:

The program is voluntary, so Lenders have to agree to workout any currently held loan before things can get started. It is not likely that Lenders will sign off on a workout unless they think they'll lose less money by using this program than by letting the property go into foreclosure. The bill requires them to make major concessions including:

• Writing down the value of the loan to 90% of the home's current value. The new current value will be set by obtaining a new appraisal and the new loan amount will be written down to 90% of that value by the new lender.
• Agree to write off any fees and penalties due on the original mortgage (including prepayment penalties) and accept the new loan proceeds as payment in full on the loan. Additionally, an up-front premium equal to 3% of the mortgage principal must be paid to FHA.
• Each new loan will have to be underwritten by an FHA underwriter on a case-by-case basis and will require full documentation to examine and verify employment, income, savings, bank accounts, job histories and credit scores.

Borrower Requirements (Costs, Savings, and Profit Sharing):

There should be little up-front costs for borrowers - typically appraisal and credit report fees. While loan origination fees and other costs vary by lender, they usually can be paid by the borrower over the life of the loan by rolling them into a slightly higher interest rate. Savings will depend on what you're paying for your current loan and what interest rate you get for your new loan. However, like everything else that involves the government, these new loans do come with a hefty price tag including:

• Borrowers are responsible for paying an insurance premium to the FHA for guaranteeing the loan, which will be 1.5% of the principal annually.
• Borrowers must agree to share any profits from future home-price appreciation with the FHA. First, they will have to pay a "3% exit fee" of the mortgage principal to the FHA whenever they sell their property and retire the debt or if they refinance the new loan. Second, they agree to pay the FHA 100% of any profits (minus costs) they realize if they sell their home within a year, 90% of any profit if they sell in year two, 80% in year three, 70% in year four, 60% in year five and then 50% thereafter for the life of the loan (30 years).

So, there you have it. Impressed with the program? - Please don't laugh, these "are" the actual requirements.