a synopsis of the hope program in the new bill

[Cigar]

8-they have to agree to share the appreciated profit or any equity gain with HUD upon the sale of that property.

How are the titles going to read, it appears that HUD is going to, in effect, be a half owner of the properties? Or are these going to be some kind of contract of sale as opposed to trust deeds?

 

[Michael Tipton]

How are the titles going to read, it appears that HUD is going to, in effect, be a half owner of the properties? Or are these going to be some kind of contract of sale as opposed to trust deeds?

It might be included in the mortgage document/note, similar to a pre-payment penalty clause. We will have to wait and see.

 

[Couch Potato]

This program has the potential to eliminate the practice of 'walking away' from an upside down situation. It is certainly not perfect, but it is a viable setup.

 

[Mike Boyd]

No,
If the original loan is $300,000 and current appraised value is $200,000, the original lender has to write down $100,000 and let the borrower to apply for the new FHA Loan. The original lender at this stage is done and has nothing else to do with this homeowner or the new refinance . The HUD is going to issue a fresh FHA loan in the amount of $180,000 and let the homeowner to start paying monthly payments of that new loan. So, if the market value of home is $200,000 and the only loan on it which is an FHA fixed rate loan is $180,000, the homeowner is going to have $20,000 equity on that home immediately. It is not too bad for the homeowner who was short on his equity before this loan and is going to be ahead by FHA refinancing.

What am I not seeing: Original loan $300,000. Write down -$100,000. New loan is 90% of the new balance...$180,000. Who comes up with the $20,000 difference? There is not $20,000 extra, it is SHORT $20,000.

 

[hglenbetts]

What am I not seeing: Original loan $300,000. Write down -$100,000. New loan is 90% of the new balance...$180,000. Who comes up with the $20,000 difference? There is not $20,000 extra, it is SHORT $20,000.

As I understand it (so far) the original mortgage holder receives from HUD $200,000 based upon the current value (and takes the $100K loss.

HUD provides a new NOTE for $180,000 for the new mortgage. This creates an equity possition of $20,000 for the owner. Consider it a gift from the government. No... CONSIDER IT A GIFT FROM THOSE OF US PAYING TAXES.

 

[J Grant]

it is not a gift from the taxpayers, the loss is absorbed by the original bank who wrote down the loan. the loss is not absorbed by the tax payers, HUD underwrites the loan with the expectation of getting half of equity at a future sale, which might benefit taxpayers...it hopefully will stabilize communities in the following way ( should have been passes months ago, would have prevented the debacle we have now)
22 Cherry Street, owned by Mr Smith, was bought for $250,000. It is now worth $200,000. Mr. Smith, upside down in his mortgage, unable to sell, will abandon the house. It now goes into foreclosure. This brings down the neighborhood, and negatively affects other values nearby. the house at foreclosure sells for $200,000, and the bank takes a loss for $50,000. Mr Smith's credit is now ruined keeping him from being a future home buyer.

Under the hope program, instead of abandoning an upside down house, Mr Smith has incentive to keep 22 Cherry Street and has it appraised for $200,000. HUD agrees to lend on it at 90%, with 10% equity for borrower, but when borrower sells, they give HUD half equity. The original bank takes the same loss they would have if in foreclosure, due to not having to pay attorney fees, maintain a house for months, pay closing costs, realtor commissions etc. 22 Cherry Street is now one less home on a flooded market. Mr. Smith saves his credit, and down the road will be able to buy another home. He sells 22 Cherry Street 4 years later for $230,000, splits difference with HUD, HUD has made money on the loan which helps keep financial system stable.

 

[Riick]

More detail:

((correction)) No 2nd Liens within 1st five years of getting the HOPE loan (special circumstances excepted)

The shared appreaicaiton feature is interesting.

Sale within 1 year - 100% of any increase in equity to FHA/HUD
Sale within 2 years - 80% of any increase in equity to FHA/HUD
Sale within 3 years - 70% of any increase in equity to FHA/HUD
Sale within 4 years - 60% of any increase in equity to FHA/HUD
Sale 5+ years - 50% of any increase in equity to FHA/HUD

-- no time limits on the 50%, and if any refinance -- HUD/FHA gets 50% of the refi $ amount, since that is homeowner equity.
.

 

[Riick]

As I understand it (so far) the original mortgage holder receives from HUD $200,000 based upon the current value (and takes the $100K loss.

HUD provides a new NOTE for $180,000 for the new mortgage. This creates an equity possition of $20,000 for the owner. Consider it a gift from the government. No... CONSIDER IT A GIFT FROM THOSE OF US PAYING TAXES.

From what I read, say $300k purchase, now worth $200k.
Loan is $180k, and LENDER takes haircut of $120K (not $100K)
The instant equity is from the Lender.
.

 

[Lloyd Bonafide]

From what I read, say $300k purchase, now worth $200k.
Loan is $180k, and LENDER takes haircut of $120K (not $100K)
The instant equity is from the Lender.
.

Right - so the original lender takes all of the loss. FHA charges a 3% upfront fee, plus 1.5% of the loan balance per year, and FHA still gets to participate in any eventual profit? It seems like the existing lender is getting the short end of the stick.

 

[Couch Potato]

Right - so the original lender takes all of the loss. FHA charges a 3% upfront fee, plus 1.5% of the loan balance per year, and FHA still gets to participate in any eventual profit? It seems like the existing lender is getting the short end of the stick.

Yes, but it is still a better deal for them than if they have to foreclose.