July 30th 2008: President Bush signed into law a legislation that helps 400,000 homeowners facing foreclosure and extends a lifeline to Fannie Mae and Freddie Mac. The law is aimed at stemming foreclosures and halting a free-fall in housing prices by providing federal insurance for refinanced 30-year mortgages for homeowners struggling to make their monthly payments. Scheduled to take effect on 10/01/2008. The FHA are writing new guidelines for this program and training lenders to underwrite this new loan program but have already established the following guidelines:
- Qualification for this new FHA loan program requires the borrower’s existing first mortgage holder to agree to reduce the mortgage balance by 15% in the pay off of the mortgage (ex. $200,000 x 15% = $30,000). According to a Congressional Report the average loss for a lender in a foreclosure is $65,000. So the government is offering the lender servicer’s the opportunity to take a $30,000 loss now, versus a $65,000 loss later.
- The borrowers with two mortgages on their property may only qualify to refinance the first mortgage due to the depreciation of the property. The maximum mortgage that FHA will approve is 96.50% of the current appraised value. Borrowers may as a result of having an existing second mortgage, have a total LTV that exceeds 100%. The second mortgage holder will be required to execute a subordination agreement to remain in second lien position.
- The borrower in return for this government assistance will be required to pay an as yet undetermined percentage of their appreciation of the property from the time of refinancing until the property is sold.
- All seller funded down payment assistance programs such as Nehemiah, AmeriDream etc. will be eliminated as of 9/30/08.
- The FHA down payment requirement for FHA purchasers has been increased from 3.00% to 3.50% effective 10/01/08.
- Maximum mortgage for this program will be $353,750 for the Orlando MSA counties. Polk and Volusia will have limits of $271.050.