On October 1, 2008, new FHA Refinance Loan Guidelines will go into effect as part of The Housing and Economic Recovery Act of 2008. This new FHA Mortgage program is designed to help thousands of homeowners who are at risk of foreclosure in their current conventional or sub-prime home loans.

The details of The “HOPE for Homeowners Act of 2008″ are as follows:

1. Eligible Borrowers

Only owner-occupants who are unable to afford their mortgage payments are eligible for the program. No investors or investor properties 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% as of March 1, 2008. Lenders must document and verify borrowers’ income with the IRS.

2. Home Equity & Appreciation Sharing

In order to avoid a windfall to the borrower created by the new 90% loan-to-value FHA-insured mortgage, the borrower must share the newly-created equity and future appreciation equally with FHA. This obligation will continue until the borrower sells the home or refinances the FHA-insured mortgage. Moreover, the homeowner’s access to the newly created equity will be phased-in over a 5 year period.

The borrower agrees to repay the following share of any home equity appreciation with the FHA when the home is sold or refinanced again;

A. 100% of any equity earned is paid to the government FHA if the home sells or the borrower refinances within 1 year.

B. 90% of any equity earned is paid to the FHA if the home sells or the borrower refinances within 2 years.

C. 80% of any positive equity earned is paid to the FHA if the home sells or the borrower refinances within 3 years.

D. 70% of any positive equity earned is paid to the FHA if the home sells or the borrower refinances within 4 years.

E. 60% of any positive equity earned is paid to the FHA if the home sells or the borrower refinances within 5 years.

F. 50% of any positive equity earned is paid to the FHA if the home sells or the borrower refinances after 5 years.

Note: The FHA requires a 3% Exit Fee of the Mortgage Principal Balance when the borrower sells or refinances the home again.

3. Other Requirements

Existing Subordinate Liens

Before participating in this program, all subordinate liens (such as second loans, home equity loans, etc.) must be extinguished. This will have to be done through negotiation with the first lien holder.

Mortgage Insurance and Other Fees

The Up Front FHA Mortgage Insurance Premium that is required on all FHA Refinance Loans will change as part The Housing and Economic Recovery Act of 2008. The Monthly MI Rates have also been updated. The following FHA MI rates will begin on October 1, 2008 and will be effective for 12 months;

FHA Up Front MIP – Required on all FHA Loans (Can be financed into loan amount).

1.75% – Normal FHA 203(b) Refinance 1.5% – FHA Streamlined Refinance 3.0% – FHASecure (Refinance for high risk borrowers who are already delinquent on current mortgage)

Monthly MI – Multiply the loan amount by the figure below and then divide by 12. The result is your Monthly Mortgage Insurance.

30 Year Note 0.55% – Refinance greater than 90% of the home’s LTV. 0.50% – Refinance less than or equal to 90% of the home’s LTV.

15 Year Note 0.25% – Refinance greater than 90% of the home’s LTV. Monthly MI is not required on an 15 Year FHA Refinance Loan with an LTV of 90% or less.

The FHA Refinance Loan Process

Each new loan will be originated and underwritten on a case-by-case basis. To get approved, your income statements, bank accounts, credit scores and work history will be examined. A new appraisal must be performed on your home to determine its current value.

If it doesn’t have positive equity, then you must contact your current lender and negotiate with them to reduce (write down) your current mortgage to 90% of its current appraised value. If your current lender agrees to the write down, then you will be able to proceed with the FHA refinance.

By: Spencer Llewellyn