The HOPE for Homeowners Program: The Plan to Help Struggling Homeowners

In early December 2008, the Chief Economist and Senior VP of Research and Economics for Mortgage Bankers Association said, "At this rate we are looking at finishing 2008 at about 2.2 million foreclosure actions started." With such high numbers of foreclosures happening around the country, the stability of our national economy as well as the global economy has been threatened. Powerhouse companies are facing bankruptcy, neighborhood streets are littered with "for sale" signs, and homeowners in every income bracket are feeling the pinch.

The housing crisis has had a domino effect on the rest of our markets, and with no end in sight for foreclosures, it became obvious to legislators and lending companies that they'd need to work together to help out struggling homeowners, and in turn, our entire economy.

The HOPE for Homeowners initiative was designed by Congress to help homeowners who are at risk for foreclosure. The goal was to assist qualified homeowners by getting them new mortgages through a joint venture between lenders and the Federal Housing Administration.

The HOPE program began on October 1, and will continue until September 30, 2011. With $29.5 million dollars available, it has been projected that as many as 400,000 homeowners would receive assistance through HOPE, and be able to keep their homes.

In its first incarnation, the HOPE program included the following terms and conditions:

-the original mortgage must have been created on or before January 1, 2008.

-as of March 1, 2008, the monthly mortgage payments must be costing the homeowner more than 31% of their gross monthly income.

-the new HOPE loan would be based on 90% of the home's appraised value, which means that lenders must agree to take a loss on every loan through the program.

-if the home appreciates in value, all profits must be shared with the FHA.

-the mortgage would be a 30-year, fixed rate loan, with a maximum allowance of $550,440.

With these and many other stipulations in place, the HOPE program failed to attract lenders and borrowers. In fact, over the course of the first two weeks, a mere 42 people applied for the program. This led the Department of Housing and Urban Development to make key changes to make the plan more appealing.

One of these changes included increasing the loan-to-value ratio from 90% to 96.5% for qualified borrowers. This single adjustment would make the program much more attractive to lenders who felt that going through the ordeal of the HOPE program would result in very little recovery for them. In fact, many lenders felt that the HOPE for Homeowners program wouldn't return to them much more money than a simple foreclosure would.

The Department of Housing and Urban Development also increased the number of years that borrowers had to pay back the loan, from a set 30 years to a more flexible span of 30-40 years. This change means that participants in the program would be able to reduce their monthly payments even more, thereby making the hassles of the program more worthwhile. In addition, the maximum loan amount has been increased to allow room for more eligible borrowers than the program's initial scope.

These changes indicate that those in power see the need to make financing more flexible for homeowners who are having trouble making their monthly payments. Their hope is that more people will find out about the program, and that lenders will be willing to work with the FHA to keep people in their homes. After all, the more foreclosures we have in this country, the worse our economy gets. While mortgage payments are one person's problem, our society's rapid slide into a recession affects us all. It's time for solutions.

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