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A Look at Congress's Long-Promised, Long-Delayed Mortgage Relief
Congress estimates that the program could help 400,000 borrowers in danger of foreclosure.
(By David Zalubowski -- Associated Press)
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· Agree to use and occupy the refinanced house as a principal residence and not own any other homes.
An important and somewhat unusual feature of the program is the federal government's requirement that homeowner beneficiaries share any appreciation profits or equity gains from the sale of the house in subsequent years. The message here is that Hope is no free ride. The refinancing process itself would essentially create new equity stakes for borrowers because the maximum loan amount would be 90 percent of the appraised market value of the property.
Borrowers who had been underwater and in serious default would suddenly find themselves with 10 percent equity stakes overnight, but they won't be able to tap that money quickly. If the home is sold within the first year after the refinancing, the FHA must be repaid the equity created in full. In sales during the next four years, homeowners can retain rising percentages of the equity, up to 50 percent. In addition, the FHA will be entitled to 50 percent of any appreciation in market value from the date of refinancing to a subsequent sale.
Under the legislation, the Hope program could start as early as Oct. 1, but it must terminate on Sept. 30, 2011. The unanswerable questions hovering over the entire Hope concept: Will enough lenders and investors agree to take the upfront losses -- they call them "haircuts" -- required to participate? Congressional estimates suggest that up to 400,000 financially distressed borrowers could be assisted, but nobody knows for sure.
Also, will lenders send only the dregs of their portfolios -- borrowers with the least likelihood of future success -- to the FHA? And if so, could the program end up being far more costly than Congress anticipated, even with a $300 billion authorization to cover insurance losses?
Kenneth R. Harney's e-mail address isKenHarney@earthlink.net.
