Can the Hope for Homeowners Program Save Your Home?

The United States is experiencing a foreclosure boom and an economic meltdown at the same time-and it's affecting millions of homeowners.

Drive down any street in America, and the chances are that one or more of the houses are in danger of being foreclosed upon.

There are a number of reasons why homeowners can't make their mortgage payments. As we've recently discovered, banks' predatory lending practices have largely contributed to the problem.

A declining economy doesn't help the situation either. Money is tight for households. Companies are also looking to cut costs, which has resulted in tens of thousands of layoffs.

We've seen how mortgage foreclosures have had a major effect on the nation's economy. The government recognizes this as well and has understandable reasons for why it would want Americans to get back on track with their mortgage payments.

That's one reason why the government created The Hope for Homeowners Program, commonly known as the H4H program, which was signed into law by President Bush and then jumpstarted on Oct. 1, 2008.

This H4H program was included in the$300 billion Housing and Economic Recovery Act of 2008 (H.R. 3221). It didn't get as much attention as the $700 billion bailout plan; however, it appears that this program could potentially provide more immediate assistance to stressed homeowners.

Through the Federal Housing Administration (FHA), which is an extension of the U.S. Department of Housing and Urban Development (HUD), some homeowners will be allowed to refinance their mortgage(s) into a more manageable FHA-insured mortgage.

Here's how the H4H program works.

Breaking Down the H4H Program

The H4H program is meant to help struggling homeowners keep their homes. The government negotiates to buy your mortgage(s) at a reduced rate from your lender.

It's solely up to your lender to decide if it wants to participate.

If your lender agrees to participate, the government will buy your old mortgage(s) at, oftentimes, a significantly reduced rate from your lenders. Then FHA provides you with a new, 30-year, fixed-rate mortgage that is insured by the FHA. The new loan will have lower monthly payments.

Under this program, there is a maximum mortgage amount of $550,440 and there are no prepayment penalties. In addition, subordinate liens attached to your mortgage will likely be extinguished.

At this point, you may be asking yourself why your lender would want to participate in the program-after all, the program is voluntary for lenders.

The truth is that some lenders may assess that agreeing to the H4H program would be less costly than foreclosing on your home.

Although the lender will miss out on getting paid for the full mortgage value, it will still collect on part of the loan. To some lenders, that's better than getting nothing and having to pay for foreclosure proceedings.

However, some lenders will assess that they can get more money from sticking with its collection efforts and they can refuse to take part in the H4H program.

If I Participate in the H4H Program, What Do I Have To Do For The Government?

When determining whether the H4H program is right for you, one should ask, "Why would the government want to help me?"

The government has a vested interest in the housing industry because it so greatly affects the overall economy-so it does want to give a helping hand to homeowners.

However, this program doesn't just exist because the government is "nice".

The kicker is that government gets a piece of the homeowner's current and future equity.

So when a homeowner refinances through the H4H program, the homeowner must agree to give the government a part of the equity that was created in the process and a portion of their future equity.

The Pay-to-Play Aspect of the H4H Program

When you refinance through this program, you must pay an upfront mortgage insurance payment of 3 percent of the original mortgage amount and an annual premium of 1.5 percent of the outstanding mortgage amount.

You will also be required to pay the closing costs of the loan. The government will provide you with a good faith estimate of those costs. Closing costs typically cost about 4 to 5 percent of the loan amount.

It's important to recognize that if you choose to participate in the government's H4H program, you will not be allowed to take out a second mortgage for the first five years of the loan.

There are only a few exceptions to that rule, which include specific circumstances for emergency home repairs.

Do I Qualify to Participate in the H4H Program?

To find out whether you may qualify for the H4H program, you should contact HUD; however, some of the basic qualifiers for participation include:

you live in your home and you don't have ownership interest in any other residential property (like a second home or a timeshare property);
your mortgage originated on or before January 1, 2008;
you've made at least six mortgage payments;
you're not able to pay your existing mortgage without assistance;
your total mortgage payments are more than 31 percent of your gross monthly income as of March 2008;
you haven't been convicted of fraud in the past ten years;
you haven't intentionally defaulted on debts;
you didn't knowingly provide false information when obtaining your mortgage(s); and
your lender has agreed to participate in the program.

Make The Choice That Is Right for You

In the end, this program may be able to provide some needed assistance to certain homeowners. Like everything else in life, there are pros and cons to this program.

It's up to the homeowner to weight his or her options and decide what is best for their situation. Get more information on other ways to stop foreclosure.