Published: Friday, August 1, 2008 at 5:30 p.m.
The Hope for Homeowners Act of 2008 signed by President Bush on Wednesday includes provisions aimed at helping as many as 400,000 homeowners who are struggling to avoid foreclosure. Here are some questions and answers on what it means.
Q: What will the legislation do?
A: It will allow those who qualify to cancel their old mortgage loans and replace them with 30-year, fixed-rate loans for up to 90 percent of the home's current value. The FHA will insure a total of $300 billion of the loans over a three-year period.
But the decision on whether to write such a loan remains up to banks, which would have to be willing to take a loss on the existing loans in exchange for avoiding an often-costly foreclosure.
Q: Who is eligible?
A: Eligible borrowers must have spent at least 31 percent of their monthly incomes on their mortgages as of March 1, 2008. The troubled loan must have originated no later than Jan. 1, 2008, and be on the borrower's primary residence. And the borrower's income must be verified. (Interested in getting pre-qualified for a Home Loan - click here to start the process...)
Q: When does the program start?
A: It takes effect Oct. 1 and runs through September 2011, although the FHA isn't likely to have it operating at full capacity until next year.
Q: Because lenders can choose which loans to refinance, how can consumers determine whether theirs will be selected?
A: Check with the bank or financial company servicing your mortgage, but it may be weeks before they make decisions on the new guidelines and assess individual loans.
Even then, keep expectations limited.
"Servicers are going to be reluctant to take the government up on their offer," predicted Mark Zandi, chief economist at Moody's Economy.com. "The earliest they'll start taking them up on it is early next year. And even then it's likely to be modest."
Q: Is there anything a homeowner can do to improve chances of benefiting from the program, such as crunching numbers to make a case for the bank?
A: Not really. The best step is to keep up your payments as best you can.
Q: But doesn't this provide an incentive to NOT pay your mortgage, if you're barely keeping ahead of bills and are underwater on your house, so you can qualify?
A: No. If your situation deteriorates enough, the bank may reject any possible new loan.
"Turning yourself into a financial basket case is not going to work," said Dan Seiver, a finance professor at San Diego State University. "If you turn into a complete deadbeat, the servicer is going to just foreclose. ... "
Q: So what should I be doing now besides trying to keep up with payments?
A: Talk to a local credit counselor and call the toll-free hot line of the Hope Now alliance - an industry group trying to coordinate a response to the mortgage crisis - at 1-888-995-HOPE. It is available 24 hours a day to provide mortgage counseling in multiple languages.
Mary Thomason, director of resource development for The Impact Group of Atlanta, a housing counseling group, also suggests tracking expenses and income closely in order to be able to forecast your cash flow for the next six months and give yourself better control of your finances.
Q: If the banks and lenders refuse to write these loans, then what?
A: Public and political pressure may prompt them to participate. If not, and more people continue to lose their homes, Zandi says the next White House administration may subject banks and lenders to additional regulations or investigations if they remain unwilling to take on the risks.
Q: What happens if I'm able to sell my home after I refinance?
A: You must agree to share any profits from the resale with the government, based on a sliding scale, and FHA must be repaid the equity.
Q: Where can consumers find more detailed information about the plan?
A: There is a six-page summary of the housing act at The Senate Bank Section - Click here. The FHA's Web site at www.fha.gov is a place to watch for updated information.
Web Link: Get answers to questions about legislation to help homeowners
Word Press Blog Posting: Don’t be defeated if you are facing a Foreclosure!
