FHA to the Rescue !

This is big news. Homeowners in trouble with their lenders may qualify to in effect, re-finance their existing mortgages into the government-guaranteed FHA 30 year ("or more") loan. Here is the digest from our state association:

FEDERAL HOUSING BILL NOW LAW:
This week, President Bush signed into law the Housing and Economic Recovery Act of 2008. This sweeping legislation primarily seeks to protect homeowners from foreclosure, stop declining home prices, and stabilize the mortgage industry. Major provisions of the new law affecting the real estate practice are as follows:
$300 BILLION IN FHA REFINANCING: Under the HOPE for Homeowners Program, 400,000 distressed homeowners can pay off their troubled mortgages and replace them with more affordable, FHA-insured loans.

To qualify, a borrower's monthly payment on existing mortgage loans must be over 31% of his or her income as of March 1, 2008 (hence demonstrating the borrower's inability to afford the original loans). The original loans must have been originated before 2008, and secured by the borrower's principal residence (as well as only residence). Also to qualify, the borrower must satisfy FHA underwriting requirements for the new FHA-insured refinance loan.

The FHA refinance will be a fixed rate loan up to $550,400 for at least 30 years, and will include charges for FHA insurance premiums. The maximum loan-to-value ratio of the FHA refinance is 90% of the appraised value. If the refinance proceeds are insufficient to pay off the existing liens, the refinance will not go through unless the original lenders voluntarily agree to accept a short payoff as payment in full. Rules will be established to allow, among other things, equity sharing for the original junior lienholders.

Upon obtaining the FHA refinance, the borrower must share with the FHA at least 50% of any equity realized through a subsequent sale or refinance. The FHA's share in equity will be based on a sliding scale of 100% of any equity realized within the first year of the FHA loan, 90% the second year, and so on, but not less than 50%. The HOPE for Homeowners Program shall be in effect from October 1, 2008 to September 30, 2011.