Government Workout Programs
December 9th, 2008
Categories:Real Estate News
Here is a list of the current workout programs offered by the Government. At this point all programs are on the federal level as states have not been given monies for programs. Cities have received some monies to help improve the market, but are under tight time lines to spend the monies.
Hope for Homeowners (H4H):
Program Begins: October 1st, 2008 and will end Sept 30, 2011
This program provides a “last hope” for homeowners by bringing in the federal government who voluntarily allow borrower to refinance under H4H. It reduces the mortgage amount to 90% of the appraised value of the home. Additionally the new loan has to be a 30-year fixed loan. FHA will insure up to $300 Billion of these new loans. The catch is that if you take this loan, you have to split the intial equity created by the write down of the mortgage with FHA. The government also gets 50% of any appreciated value for as long as you own the home, even after you pay off the mortgage. H4H participants are not allowed to take second mortgages out on their home unless it is being used to maintain the property. Other costs include a 3% upfront mortgage insurance premium and a 1.5% annual premium based on the mortgage amount.
The big issue with this program lies with what it will take to get the loan amount down to 90% of the appraised value of the home. Right now that means the banks will need to agree to write off the difference from the original loan to the new FHA insured loan. This is where most banks at this time are unwilling to cooperate with the program.
Streamlined Modification Program (Fannie Mae and Freddie Mac):
Program Begins: December 15th, 2008
This program only applies to mortgages owned or guaranteed by Fannie Maw and Freddie Mac. With this program, a borrower who is 90 days delinquent will be eligible for a new loan with a payment that does not exceed 38% of his gross monthly income. Proof that “hardship” has occurred is needed to qualify.
Federal Bailout Money:
For the most part the monies from ERA and TARP have been given to the big five banks, also known as the fortress lenders. Of the $700 billion authorized for various bail0out programs, about $350 billion will be spent in this manner. The Secretary of Treasury has indicated in late November 2008, (a reversal of his former statements), that the other $350 Billion will not be used to buy assets from the “bottom up”. The FDIC has taken the contrary position and believes the workouts should be funded by the government buying assets from the lenders and having it conduct the workouts, which would likely then be far more liberal (better), for the borrower than the current Treasury plans
President Elect Barak Obama:
The incoming president has taken the position that he is going to change the direction taken by the Treasury. He has talked about “national foreclosure moratoriums” and the kind of asset purchase program the FDIC wants. It is likely he will replace the current Secretary of the Treasury who has failed under heavy criticism for using bailout monies to bail out the banks instead of the borrowers on the bottom. The current system is being referred to as the “trickle down” system and is strongly criticized for not working. Obama has been outspoken about a “trickle up”system that will help strapped homeowners.
FHA/HUD Changes:
The current FHA/HUD loan maximum for Maricopa County, Arizona is $346,250. Effectively in 2009, it will DROP to $271,050. Thereafter it will go by zip code and change radically from one community to another.
Related posts:
- What Banks Have Loan Workout Programs?
- Current Workout Programs Accepted Most Banks
- Big 3 – Loan Programs
- Housing and Economic Recovery Act
- New Housing Bill