HOPE for Homeowners Program now in Effect

As of October 1, 2008, the HOPE for Homeowners (H4H) foreclosure prevention program is in effect. It was signed into law on July 30, 2008 as part of the Housing and Economic Recovery Act of 2008. This program ends on September 30, 2011.

This new legislation allows hundreds of thousands of homeowners trapped in mortgages they can't afford on homes that have plummeted in value escape foreclosure by refinancing into more affordable, fixed-rate loans backed by the Federal Housing Administration (FHA). Lender participation is voluntary because they would have to agree to take a substantial loss on the existing loans. But, in return, they would walk away with at least some payoff and avoid the often-costly foreclosure process.

Program Eligibility
The following highlights a few key qualification criteria for the HOPE for Homeowners Program:

• All Qualified borrowers must live in their homes and have loans that were issued to them before January 1st, 2008.
• Qualified borrowers must be spending at least 31% of their gross monthly income on mortgage debt.
• The borrowers can be up-to-date on their existing mortgage or in default, but must prove that they will not be able to keep paying their existing mortgage. Additionally, they must attest that they are not deliberately defaulting just to obtain lower payments.
• Prior to getting an FHA-backed mortgage, borrowers must first retire any other debt on the home, such as a home equity loan or line of credit. The same borrowers are not permitted to take out another home equity loan for at least five years, unless it's to pay for necessary upkeep on the home.
• Borrowers can get a new home equity loan, subject to approval from the FHA. The total new combined debt cannot exceed 95% of the home's appraised value at the time.

There are other qualification criteria for this loan. Plus, you need to understand that if you refinance under the HOPE for Homeowners Act that you will be sharing any equity you build in the house with the FHA if you refinance later on or sell the house. But, that's a lot better than losing your home altogether to a foreclosure. Plus, it's a lot better for your credit than foreclosing would be.

How do I apply? Contact your current mortgage servicer or go directly to an FHA-approved lender for help. Federal housing officials have compiled a list of lenders participating in the HOPE for Homeowners program. The list was last updated on October 17th, and they plan on updating it each Friday.

When contacting any of the HOPE for Homeowners lenders on the list, 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," HUD advised.