Hope Now Program

The Hope Now program was announced this week with "hope" that it will help some sub-prime mortgagors dig out of their hole.  One of my readers asked for real numbers in how this program will help out the mortgagors in different price ranges.  Although each person's scenario will be different, here are some examples of how the program will impact monthly payments.

If the mortgage balance is $100,000 with a current interest rate of 7.5% (remember the rate is based on sub-prime lending and is, therefore, higher), the current principle and interest payment only is $699.21 each month.  To this amount would be added an amount for property taxes and home owner's insurance making the total payment much higher.  The new interest rate on the loan is going to be 10% making the next principal and interest payment $877.57 per month.  That is an increase of $178.36 each month.  The Hope Now program will freeze the payments at 7.5% for an additional 5 years causing a savings of $10,701.60 for the homeowner and a loss of the same amount to the investor who is collecting the payments from that loan.

For a mortgage balance of $150,000 with a current interest rate of 7.5%, the principle and interest payment is $1,048.82.  The new interest rate of 10% would make a new payment of $1,317.36.  The five year freeze on the interest rate would save this homeowner $16,052.40 and create a loss to the investor of the same amount.

The $200,000 loan with the same interest rates has a current payment of $1,398.43 and a new payment of $1,755.14.  The savings for the homeowner is $21,402.60 with an equal loss to the investor.

Whereas these figures are considerable, St. Paul houses going into foreclosure are creating equally large losses for mortgage investors.  As a result, investors can see the wisdom of participating in the Hope Now program with the hope that less homes go into foreclosure and more homes will be refinanced or sold.

If you currently have a sub-prime mortgage that originated between January 1, 2005, and July 31, 2007, are owner occupying your St. Paul home, have not missed any payments, your interest rate will reset in the next two years, and the new payments will not be affordable, click here for additional information and to contact a HUD approved credit counselor to see if the program applies to you.

Comments

[Lee Matthews - Financial Concepts West]

"As a result, investors can see the wisdom of participating in the Hope Now program with the hope that less homes go into foreclosure and more homes will be refinanced or sold."

Investors should consider using HELOCs to accelerate the equity on their properties. The next best thing to do if you can't sell a property is to accelerate the property's equity. More equity means greater flexibility.

For those who know how to do it, a HELOC allows them to pay off a 30 year mortgage in as little as 8-12 years, without refinancing and with little or no change to their lifestyle.