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NEW HOUSING BILL - REFINANCE HELP FOR SOME, BUT NOT FOR ALL
Posted by: Marlyn Wiener
August 06, 2008
Topic: The Housing and Economic Recovery Act of 2008
Here's what we know about the loan refinance programs that the housing bill authorizes:
Eligibility - only qualified homeowners living in their homes and who have loans that were issued between January 2005 and June 2007 will be eligible. It is anticipated that the approximately 400,000 homeowners will potentially qualify for and obtain a loan refinance under the new housing bill- although it is estimated that perhaps 4,000,000 mortgage loans will be in foreclosure. No investors or investor properties or vacation homes will qualify. Homeowners must certify, under penalty of law, that they have not intentionally defaulted on their loan to qualify for the program and must have a mortgage debt to income ratio greater than 31 percent as of March 1, 2008. Lenders must document and verify borrowers' income with the IRS
Lender participation - lenders are not required to participate in the refinance programs - participation is voluntary. Before participating in this program, all subordinate liens (i.e. home equity loans) must be extinguished. This will have to be done through negotiation with the first lien holder.
Write-down of portion of mortgage balance - the refinance program is voluntary and will require the mortgage lender to write down the value of the loan to 90% of the home's current fair market value (which will mean that the lender will take a substantial loss). A new FHA lender will do a thorough underwriting of the borrower - and if the old lender agrees to the amount of the write-down and the new FHA lender approves the borrower - the new FHA lender will buy the old loan and take over the reworked mortgage.
Strings attached - Borrowers will pay the FHA an annual insurance premium of 1.5% of the principal. Borrowers will share any profits from future home appreciation with the FHA on a sliding scale of 100% of the profits if the house is sold or refinanced within one year - dropping by 10% increments to 50% after the fifth year, where it stays. Borrowers will also pay the FHA a 3% exit fee when they sell or refinance.
