Hope For Homeowners

The new FHA refinance plan is entitle "Hope For Homeowners." The idea is to help homeowners refinance their home to CURRENT market value and hopefully save their homes. This option has a lot of small print, so I'll try to break some of it down for you.

• New Loan Requirement - Requires 30 year fixed rate loan NOT exceeding 90% of the property's CURRENT value.
  
• Write-Down - Noteholders need to reduce the principal balance to achieve the 90 percent loan-to-value requirements. No prepayment penalties.
  
• Noteholder has to pay 3% upfront premium from the proceeds of the refinance. Borrower pays 1.5% premium annually built into the payments.
  
• Shared Appreciation - Requires borrower to share future equity with FHA when the property is sold or the loan is refinanced. First year FHA shares equity 90/10 in their favor which graduates at 10% per year for the next 5 years until borrower and FHA share equity at 50/50 until home is sold or refinanced.
  
• Sunset - Program runs from 10/1/2008 through 9/30/11.

So, in a nut shell. If the lender agrees to write down the loan to 90% of current market value and borrower can document income that they can afford the home and meet credit guidelines, the loan can be refinanced. At first glance it looks like a lender would never agree to this, but lender's do NOT want to foreclose on properties and would prefer to keep a loan on the property if they know the loan will be current. It costs a lener a lot more than 10% of current market value to foreclose on a typical home.