Hope for Homeowners or
Homeowner Bailout Bill
The "HOPE for Homeowners Program" which was signed into law in August of 2008 provides an FHA insured refinancing option to homeowners facing foreclosure. It is anticipated to insure around $300 billion in new 30 year fixed rate loans.
This is a voluntary program and both the lender and borrower must agree. The prerequisites for the homeowner are as follows:
- The home is your primary residence, and you have no ownership interest in any other residential property, such as second homes.
- Your existing mortgage was originated on or before January 1, 2008 and you have made at least six payments.
- You are not able to pay your existing mortgage without help.
- As of March 2008, your total monthly mortgage payments due were more than 31 percent of your gross monthly income.
- You certify that you have not been convicted of fraud in the past 10 years, intentionally defaulted on debts; and did not knowingly or willingly provide material false information to obtain existing mortgage(s).
- You must agree to share any future appreciation in the value of your home with the government who may, in turn, share these gains with the participating lenders.
Again, this program requires a lender to voluntarily agree to write down the principal of the loan to 90% of the current appraised value, a decision that they may or may not be willing to do, depending on whether the lender decides this will be more cost effective for them than a foreclosure.
The downside of this program for the homeowner is that they surrender a significant share of the future appreciation of the property--which may be better than losing the house . . . or maybe not . . .
Consider yourself 30 years down the road life with a house where the mortgage is completely paid off and has now appreciated from $200,000 to $1,000,000. You would like to pass the house on to your children, but you realize you can't, because you will have to pay the government 50% of the appreciated value of the house or $400,000 in order to convey the property. Or your children would have to undertake a $400,000 mortgage in order for you to convey the family home to them. Perhaps it would be better planning to go through a bankruptcy proceeding now, take advantage of the financial fresh start, and purchase a new house down the road, free and clear of such a long lasting and entangling encumbrance.