CUNA Regulatory Comment Call

January 14, 2009

EXECUTIVE SUMMARY

• The Housing and Economic Recovery Act, which was signed into law by President Bush on July 30, 2008, directs the Federal Housing Administration (FHA) to refinance up to $300 billion in troubled, subprime mortgages through the Hope for Homeowners (H4H) Program. Under this program, effective for loans originated on or before January 1, 2008, eligible homeowners will be able to refinance their subprime, primary residence home loans into fixed-rate, FHA- backed loans. In exchange for an FHA guarantee on the mortgage, borrowers must share with the FHA the newly created equity and any future appreciation from the resale of the refinanced home.

• The program became effective as of October 1, 2008. There are a number of criteria for determining which borrowers may be eligible to participate. Click here for more information about the H4H program.
• The H4H program is voluntary and all lienholders must agree to participate, including any subordinated lienholders. The H4H program also allows the subordinated lienholders to share in any future appreciation of the property as a means to encourage them to participate in the program.

• The H4H Board of Directors issued a final rule last year as to how any future appreciation is to be shared with the subordinated lienholders. The subordinated lienholder may receive up to 9% of the subordinated loan balance if the cumulative loan-to-value ratio exceeds 135% or up to 12% if this ratio is less than or equal to 135%. These funds will come from FHA's share of the future appreciation, which is split evenly between FHA and the borrower. Under this approach, the future appreciation must be at least twice the subordinated loan balance in order to receive the entire 9 or 12 percent share. Click here for more information about this rule.
• The Emergency Economic Stabilization Act (ESSA) that created the $700 billion Troubled Asset Recovery Program allows FHA to pay an amount up-front to the subordinated lienholder at the time the loan is refinanced in lieu of providing a payment when the property is sold. In exchange, the subordinate lienholder must release the borrower from the debt and release the lien on the property.

• This interim final rule implements these ESSA provisions by determining the amount of the up-front payment. Under this rule, the subordinated lienholder may receive 3% of the subordinated loan balance if the cumulative loan- to-value ratio exceeds 135% or 4% if this ratio is less than or equal to 135%.

• The interim final rule also includes these provisions:
  • Increases or modifies the allowable loan-to-value (LTV) and debt-to-income ratios for new mortgages that are covered under the program. The allowable LTV will increase from 90% to 96.5%. The new monthly payment may not exceed 31% of the borrower's income and all recurring expenses may not exceed 43% of the borrower's income.
  • Expands the H4H program to 2-to-4 unit properties, as long as the property is the borrower's primary residence and the borrower has no interest in other properties.
  • Increases from 30 to 40 years the maximum term of the mortgages covered under the program in an effort to further reduce the borrower's payment.
  • Modifies the equity sharing provisions so that borrowers who may have equity in their homes at the time they are eligible to participate in the program will not have to share that initial equity with the government.
  • Provides that the amount of the equity to be shared will be calculated based on the gross proceeds of the sale of the property, or by using an appraisal if it is a non-sale disposition or if it is a sale among related parties.
  • Changes the timeframe for lenders to obtain endorsement for H4H loans so it is consistent with other FHA loan programs.
• This interim final rule is effective as of January 7, 2009. Comments on this rule are due by March 9, 2009.

Please submit your comments to CUNA by February 26, 2009. Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.com or to Senior Assistant General Counsel Jeff Bloch at jbloch@cuna.com; or mail them to Mary or Jeff in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, 6th Floor, Washington, DC 20004. You may also contact us if you would like a copy of the interim final rule or you may access it here.

• The 3 or 4 percent up-front payment is intended to be the risk-adjusted equivalent of the 9 or 12 percent share that may be obtained when the property is sold and is also intended to be the market value of the subordinate lien. Do you agree with these conclusions?
  
  

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• Do you support the other changes outlined in the interim final rule? Are you more likely to participate in the H4H program as a result of these changes? What other changes should be made to the program to encourage greater lender participation?
  
  

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• Other comments?
  
  

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