H4H program - hope or hopeless?

7 Feb 2010

For the moment, the H4H program stands for “Hopeless for Homeowners Program”, I am sorry to say. But on the other hand, any large rollout or government program requires time to adjust. Procedures, processes, protocols, software, hardware, and people all need to change to fit this new program. So, with my laptop and phone in hand, I decided to look more closely at the H4H program.

Theoretically the H4H program sounds great. Banks will write down the principal of the loan to equal 90% of appraised value. Let’s take the following example:

First Mortgage $ 400,000
Property Appraises $ 300,000
New Mortgage Amount $ 270,000

The Positives

The homeowner gets to stay in their home and pay an affordable mortgage. In addition, the homeowner receives 10% percent equity (the equity received is realized with accordance to an equity sharing schedule created by HUD).

Qualifying for the H4H program

The qualifications are many. Instead of summarizing the bullet points the following link can provide more detail: H4H Program.

The Negatives of the H4H

The are multiple negatives to the H4H Program including homeowners sharing equity with the government but that is small trade off for keeping your home. Here is a summary of the negatives. More importantly the following paragraphs describe even something more concerning.

Large Banks are not Participating

Is this program feasible? It looks like the program was rushed out with the presidential race in mind without any commitment from the major banks. No commitment means “No Hope for Homeowners”. The program rolled out October 1st, 2008 but not one major bank is on board. There are commitments from the following banks: Chase, HSBC, Bank of America, Wachovia, and Citi just to name a few but the commitments are to NOT PARTICIPATE lending new mortgage money under this program. Maybe after receiving all the government money, they will reconsider.

Small Banks are not Participating

Knowing that the large banks are not on board, I decided go with the list given to me by HUD. These lenders I assured were participating. So, I decided to call a couple of the lenders and found out they were “conditionally” participating in the H4H Program. First and foremost the ones I spoke to were mortgage bankers. Here is the catch. Mortgage bankers can close these loans because they have “their own” money. But they will not close these loans. The reasons are very simple. It is not only too risky but too time consuming. As per the last page of origination guidance from HUD:

“Under the statute for the H4H Program, HUD is prohibited from paying insurance benefits to any lender in any case in which the borrower fails to make the first payment on the new H4H mortgage. For purposes of this Program, lenders will have a maximum of 120 days to submit a complete case binder, including evidence that the mortgage is current. FHA will not pay a claim on any mortgage under the H4H Program if the first payment was not made within 120 days. Lenders are reminded that in order to ensure compliance with this statutory requirement, FHA prohibits them or any interested third party from making any payment on behalf of the borrower, escrowing of any payment or applying any payment from closing proceeds. Violation of this requirement will also result in a denial of claim benefits”

FHA will not pay any claim under the H4H Program if the homeowner does not make any payments. The mortgage bankers see these loans as high risk. Why would they take more risk than necessary? In addition, even if the bankers funded these loans they would still have to sell the note. The note would most likely be sold to a larger lender and as I said previously they are not participating.

It looks like this program is too premature to make any future assumptions but right now there is no funding available for the H4H Program. Under the current conditions, it looks like homeowners cumulatively have the bulk of the persuading to do: “you are strongly encouraged to contact your servicing lender and any subordinate lien holders since their participation is vital for you to refinance into a HOPE for Homeowners mortgage. It is important to remember that the HOPE for Homeowners program is voluntary”, says HUD.

For right now “HOPE” can be constrained to loan modifications amongst other options available.

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