We have been exploring the H4H (Hope 4 Homeowners) FHA loan program. Under this program, homeowners who are ‘upside down’ in their homes get mortgage relief with a new FHA loan. If you owe $300,000, but your home appraisal (comp approach) is just $250,000, you may be a candidate for this new loan program.
Under H4H you get a 90% LTV loan against the appraisal value, or $225,000 home loan. The $75,000 short fall is written off by your current lender in exchange for a S.A.M. “Shared Appreciate Mortgage”. For the first 5 years you shared 100% to 50% of your home appreciation if you sell your home. (year1 = 100%, year 2 90%, year 6-30 50%).
Sharing the appreciation is easy to agreed to today, when the appraiser is saying you are $50,000 under water in equity. But what if the housing market rebounds (history tells us it will)? 2 years from now you think, “Hey let’s remodel our home?” But you realize that every dollar you invest in your home is $0.50 to the Government or your lender. No incentive to improve your home.
$300 BILLION is dedicated to the H4H program. That’s a lot of homes that will not be resold for 5+ years. A lot of homeowners who will be encouraged to stay out of Home Depot, that will do minimal repairs to the housing stock. A lot of kitchens that may not be improved.
We are creating two types of home owners, those free to move and benefit from their home appreciation (not rent controlled) and those that must share their gains with the Government.
Haves and have nots.
Every knee jerk reaction to today’s crisis has long term and lasting effects on our society and our sense of The American Dream. Just as zero down loans encouraged people to buy before they could afford to own.
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