There are four different ways that a distressed homeowner can can participate in the FHA Mortgage Loan program:

1.Homeowners may contact their existing loan giver and/or a new lender to discuss how to meet their eligibilities for the H4H Program.

2.Loan Specialists working with distressed homeowners may determine that the best solution in preventing foreclosure is to refinance the homeowner with a H4H Loan.

3.Originating lenders who are looking for new ways to refinance potential customers out from under their high-cost loans and/or who are eager to cooperate with servicers to assist troubled homeowners.

4.Loan Advisers who are working with troubled homeowners and their lenders to reach a mutually agreeable result for avoiding foreclosure.

It is envisioned that the main way homeowners will begin to participate in this program is through the servicing lender on their existing mortgage. Servicers that do not have an underwriting element to their mortgage operations can partner with an FHA-approved lender that does.

Step 1:Cost-Benefit Analysis Lender considerations:

Given their financial obligations and depositary responsibilities, lenders will assess their portfolio and perform a cost-benefit analysis to determine the feasibility of offering this program to troubled homeowners.

1.Affordability vs value: lenders will take a loss on the difference between the existing obligations and the new loan, which is set at 90 percent of present appraised value. The lender may decide to provide homeowners with an affordable monthly mortgage payment through a loan modification rather than taking the losses affiliated with declining property values.

2.Borrower eligibility: Lenders that decide the H4H program is a feasible and effective option for mitigating losses will evaluate the homeowner’s qualifications for the program:

oThe present mortgage has been active ON or BEFORE the 1st of January, 2008;

oExisting mortgage payment(s) as of The 1st of March 2008 is over 31 percent of the borrower’s gross monthly income;

oThe homeowner did not intentionally default, does not have an ownership interest in any other residential real estate and has not been in trouble with the Federal and/or state law for fraud within the last ten years; and

oThe homeowner did not provide materially invalid information (i.e., lied about income) to receive the mortgage that is being refinanced into the H4H mortgage.

Consumer contemplations: The lender will publish to the homeowner the benefits of the program:

·Home retention,

·New cost-efficient mortgage based on current appraised value,

·ten percent equity

The lender will also provide the homeowner with the costs of the H4H program:

·3 percent upfront mortgage insurance premium and a 1.5 percent annual premium,

·Equity and growth sharing with the Federal government, and

·Prohibition against new junior liens against the property unless they are directly related to property maintenance.

Step 2: Negotiations Between Mortgage Holders and Borrowers If the lender refinancing the mortgage does not hold the senior mortgage lien, it will need to secure a settlement from the existing lien holder to dismiss all deposit penalties and default fees on the existing loan and accept the loan profits from the H4H loan as payment in full. The loan amount (with the three percent UFMIP) for the new H4H loan cannot exceed 90 percentninety percent of the present evaluated value of the property. The lender will employ existing subordinate mortgage lien holders to extinguish all subsidiary liens on the subject property. To attract subordinate lien holders to participate in the compromise process and relinquish their liens, FHA has the power to divide its future appreciation entitlement with them.

Step 3: Beginning an H4H Mortgage:

The lender will meet criteria for the homeowner for the new H4H mortgage using the guidelines founded under the terms of the program’s exclusive constitutional requirement, guaranteeing that the property owner has the capacity to make the new payment on the H4H mortgage in a timely manner. During underwriting of the loan, the lender will determine the future growth interest amount for each subsidiary lien holder in agreement with procedures provided by the FHA. At settlement, subordinate lien holders will receive a certificate that shows their interest as an obligation supported by HUD, with payment conditional on the rate of HUD’s appreciation share. Following financing of the loan the lender will save – in addition to the typical security instrument and note for the first mortgage – a shared equity note and mortgage (SEM) and a shared appreciation note and mortgage (SAM). These mortgages will be serviced by FHA. The lender will also submit the new mortgage for insurance to FHA, certifying that it has been created, underwritten and shut down in accordance with the H4H program requirements.

Step 4: Accomplishing H4H Mortgage Obligations

After selling the property, the homeowner will use their sale proceeds to pay off the H4H mortgage as well as the shared equity and shared appreciation mortgages. FHA will provide procedures to the settlement agents regarding subordinate lien holders who are entitled to a part of any appreciation. The lien holder that formerly held the highest priority will receive payment up to the maximum dollar amount of its interest, not to go over the amount of ready appreciation, and so on, until all prior lien holders are fulfilled or the amount of available appreciation is consumed. All remaining appreciation is remitted to FHA. In instances where the homeowner could not make the primary payment on their new H4H mortgage, the H4H act prevents FHA from paying claim benefits to anyone owning the mortgage.