This will be way too technical for some people but for those of you who are interested in the nitty gritty of the law supporting the new HOPE loans / FHA short refis here it is. And here is a link to a PDF with the entire law. I’ve added the updates that are included in the “EMERGENCY ECONOMIC STABILIZATION ACT OF 2008”, or the Big Bailout if you prefer. Those changes are in the text in bold.
-SEC. 257. HOPE FOR HOMEOWNERS PROGRAM.
-(a) ESTABLISHMENT. There is established in the Federal Housing Administration a HOPE for Homeowners Program.
-(b) PURPOSE. The purpose of the HOPE for Homeowners Program is
–(1) to create an FHA program, participation in which is voluntary on the part of homeowners and existing loan holders to insure refinanced loans for distressed borrowers to support long-term, sustainable homeownership;
–(2) to allow homeowners to avoid foreclosure by reducing the principle balance outstanding, and interest rate charged,
on their mortgages;
–(3) to help stabilize and provide confidence in mortgage markets by bringing transparency to the value of assets based on mortgage assets;
–(4) to target mortgage assistance under this section to homeowners for their principal residence;
–(5) to enhance the administrative capacity of the FHA to carry out its expanded role under the HOPE for Homeowners
–(6) to ensure the HOPE for Homeowners Program remains in effect only for as long as is necessary to provide stability to the housing market; and
–(7) to provide servicers of delinquent mortgages with additional methods and approaches to avoid foreclosure.
(c) ESTABLISHMENT AND IMPLEMENTATION OF PROGRAM REQUIREMENTS.
–(1) DUTIES OF THE BOARD. In order to carry out the purposes of the HOPE for Homeowners Program, the Board shall
—(A) establish requirements and standards for the program;
—(B) prescribe such regulations and provide such guidance as may be necessary or appropriate to implement such requirements and standards.
(2) DUTIES OF THE SECRETARY. In carrying out any of the program requirements or standards established under paragraph
(1), the Secretary may issue such interim guidance and mortgagee letters as the Secretary determines necessary or appropriate.
(d) INSURANCE OF MORTGAGES. The Secretary is authorized upon application of a mortgagee to make commitments to insure or to insure any eligible mortgage that has been refinanced in a manner meeting the requirements under subsection (e).
(e) REQUIREMENTS OF INSURED MORTGAGES. To be eligible for insurance under this section, a refinanced eligible mortgage shall comply with all of the following requirements:
H. R. 3221 148
(1) LACK OF CAPACITY TO PAY EXISTING MORTGAGE.
(A) BORROWER CERTIFICATION.
(i) IN GENERAL. The mortgagor shall provide certification to the Secretary that the mortgagor has not intentionally defaulted on the mortgage or any other debt, and has not knowingly, or willfully and with actual knowledge, furnished material information known to be false for the purpose of obtaining any eligible mortgage.
(I) FALSE STATEMENT. Any certification filed pursuant to clause (i) shall contain an acknowledgment that any willful false statement made in
such certification is punishable under section 1001, of title 18, United States Code, by fine or imprisonment of not more than 5 years, or both.
(II) LIABILITY FOR REPAYMENT. The mortgagor shall agree in writing that the mortgagor shall be liable to repay to the Federal Housing Administration any direct financial benefit achieved from the reduction of indebtedness on the existing mortgage or mortgages on the residence refinanced under this section derived from misrepresentations made in the certifications and documentation required under this subparagraph, subject to the discretion of the Secretary.
“(B) CURRENT BORROWER DEBT-TO-INCOME RATIO. As of March 1, 2008, the mortgagor shall have had , or thereafter is likely to have, due to the terms of the mortgage being reset, a ratio of mortgage debt to income, taking into consideration all existing mortgages of that mortgagor at such time, greater than 31 percent (or such higher amount as the Board determines appropriate).
“(2) DETERMINATION OF PRINCIPAL OBLIGATION AMOUNT.
The principal obligation amount of the refinanced eligible mortgage to be insured shall
“(A) be determined by the reasonable ability of the mortgagor to make his or her mortgage payments, as such ability is determined by the Secretary pursuant to section 203(b)(4) or by any other underwriting standards established by the Board; and
“(B) not exceed 90 percent of the appraised value of the property to which such mortgage relates (or such higher percentage as the Board determines, in the discretion of the Board).
“(3) REQUIRED WAIVER OF PREPAYMENT PENALTIES AND FEES. All penalties for prepayment or refinancing of the eligible mortgage, and all fees and penalties related to default or delinquency on the eligible mortgage, shall be waived or forgiven.
“(4) EXTINGUISHMENT OF SUBORDINATE LIENS.
“(A) REQUIRED AGREEMENT. All holders of outstanding mortgage liens on the property to which the eligible mortgage relates shall agree to accept the proceeds of the insured loan and any payments made under this paragraph, as payment in full of all indebtedness under the eligible mortgage, and all encumbrances related to such eligible mortgage shall be removed. The Secretary may take such actions, subject to standards established by the Board under subparagraph (B), as may be necessary and appropriate to facilitate coordination and agreement H. R. 3221 149 between the holders of the existing senior mortgage and any existing subordinate mortgages, taking into consideration the subordinate lien status of such subordinate mortgages. Such actions may include making payments, which shall be accepted as payment in full of all indebtedness under the eligible mortgage, to any holder of an existing subordinate mortgage, in lieu of any future appreciation payments authorize under subparagraph (B).
“(B) SHARED APPRECIATION.
“(i) IN GENERAL. The Board shall establish standards and policies that will allow for the payment to the holder of any existing subordinate mortgage of
a portion of any future appreciation in the property secured by such eligible mortgage that is owed to the Secretary pursuant to subsection (k).
“(ii) FACTORS. In establishing the standards and policies required under clause (i), the Board shall take into consideration
“(I) the status of any subordinate mortgage;
“(II) the outstanding principal balance of and accrued interest on the existing senior mortgage and any outstanding subordinate mortgages;
“(III) the extent to which the current appraised value of the property securing a subordinate mortgage is less than the outstanding principal balance and accrued interest on any other liens that are senior to such subordinate mortgage; and
“(IV) such other factors as the Board determines to be appropriate.
“(C) VOLUNTARY PROGRAM. This paragraph may not be construed to require any holder of any existing mortgage to participate in the program under this section generally, or with respect to any particular loan.
“(5) TERM OF MORTGAGE. The refinanced eligible mortgage to be insured shall
“(A) bear interest at a single rate that is fixed for the entire term of the mortgage; and
“(B) have a maturity of not less than 30 years from the date of the beginning of amortization of such refinanced eligible mortgage.
“(6) MAXIMUM LOAN AMOUNT. The principal obligation amount of the eligible mortgage to be insured shall not exceed 132 percent of the dollar amount limitation in effect for 2007 under section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)(2)) for a property of the applicable size.
“(7) PROHIBITION ON SECOND LIENS. A mortgagor may not grant a new second lien on the mortgaged property during the first 5 years of the term of the mortgage insured under this section, except as the Board determines to be necessary to ensure the maintenance of property standards; and provided that such new outstanding liens (A) do not reduce the value of the Government’s equity in the borrower’s home; and (B) when combined with the mortgagor’s existing mortgage indebtedness, do not exceed 95 percent of the home’s appraised value at the time of the new second lien.
“(8) APPRAISALS. Any appraisal conducted in connection with a mortgage insured under this section shall
“(A) be based on the current value of the property;
H. R. 3221 150
“(B) be conducted in accordance with title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 3331 et seq.);
“(C) be completed by an appraiser who meets the competency requirements of the Uniform Standards of Professional Appraisal Practice;
“(D) be wholly consistent with the appraisal standards, practices, and procedures under section 202(e) of this Act that apply to all loans insured under this Act; and
“(E) comply with the requirements of subsection (g) of this section (relating to appraisal independence).
“(9) DOCUMENTATION AND VERIFICATION OF INCOME. In complying with the FHA underwriting requirements under the HOPE for Homeowners Program under this section, the mortgagee shall document and verify the income of the mortgagor or non-filing status by procuring (A) an income tax return transcript of the income tax returns of the mortgagor, or(B) a copy of the income tax returns from the Internal Revenue Service, for the two most recent years for which the filing deadline for such years has passed and by any other method, in accordance with procedures and standards that the Board shall establish.
“(10) MORTGAGE FRAUD. The mortgagor shall not have been convicted under Federal or State law for fraud during the 10-year period ending upon the insurance of the mortgage under this section.
“(11) PRIMARY RESIDENCE. The mortgagor shall provide documentation satisfactory in the determination of the Secretary to prove that the residence covered by the mortgage to be insured under this section is occupied by the mortgagor as the primary residence of the mortgagor, and that such residence is the only residence in which the mortgagor has any present ownership interest.
“(f) STUDY OF AUCTION OR BULK REFINANCE PROGRAM.
“(1) STUDY. The Board shall conduct a study of the need
for and efficacy of an auction or bulk refinancing mechanism
to facilitate refinancing of existing residential mortgages that
are at risk for foreclosure into mortgages insured under this
section. The study shall identify and examine various options
for mechanisms under which lenders and servicers of such
mortgages may make bids for forward commitments for such
insurance in an expedited manner.
“(A) ANALYSIS. The study required under paragraph
(1) shall analyze
“(i) the feasibility of establishing a mechanism that
would facilitate the more rapid refinancing of borrowers
at risk of foreclosure into performing mortgages
insured under this section;
“(ii) whether such a mechanism would provide an
effective and efficient mechanism to reduce foreclosures
on qualified existing mortgages;
“(iii) whether the use of an auction or bulk
refinance program is necessary to stabilize the housing
market and reduce the impact of turmoil in that
market on the economy of the United States;
H. R. 3221 151
“(iv) whether there are other mechanisms or
authority that would be useful to reduce foreclosure;
“(v) and any other factors that the Board considers
“(B) DETERMINATIONS. To the extent that the Board
finds that a facility of the type described in subparagraph
(A) is feasible and useful, the study shall
“(i) determine and identify any additional
authority or resources needed to establish and operate
such a mechanism;
“(ii) determine whether there is a need for additional
authority with respect to the loan underwriting
criteria established in this section or with respect to
eligibility of participating borrowers, lenders, or
holders of liens;
“(iii) determine whether such underwriting criteria
should be established on the basis of individual loans,
in the aggregate, or otherwise to facilitate the goal
of refinancing borrowers at risk of foreclosure into
viable loans insured under this section.
“(3) REPORT. Not later than the expiration of the 60-
day period beginning on the date of the enactment of this
section, the Board shall submit a report regarding the results
of the study conducted under this subsection to the Committee
on Financial Services of the House of Representatives and
the Committee on Banking, Housing, and Urban Affairs of
the Senate. The report shall include a detailed description
of the analysis required under paragraph (2)(A) and of the
determinations made pursuant to paragraph (2)(B), and shall
include any other findings and recommendations of the Board
pursuant to the study, including identifying various options
for mechanisms described in paragraph (1).
“(g) APPRAISAL INDEPENDENCE.
“(1) PROHIBITIONS ON INTERESTED PARTIES IN A REAL ESTATE
TRANSACTION. No mortgage lender, mortgage broker, mortgage
banker, real estate broker, appraisal management company,
employee of an appraisal management company, nor any other
person with an interest in a real estate transaction involving
an appraisal in connection with a mortgage insured under
this section shall improperly influence, or attempt to improperly
influence, through coercion, extortion, collusion, compensation,
instruction, inducement, intimidation, nonpayment for services
rendered, or bribery, the development, reporting, result, or
review of a real estate appraisal sought in connection with
“(2) CIVIL MONETARY PENALTIES. The Secretary may
impose a civil money penalty for any knowing and material
violation of paragraph (1) under the same terms and conditions
as are authorized in section 536(a) of this Act.
“(h) STANDARDS TO PROTECT AGAINST ADVERSE SELECTION.
“(1) IN GENERAL. The Board shall, by rule or order, establish
standards and policies to require the underwriter of the
insured loan to provide such representations and warranties
as the Board considers necessary or appropriate to enforce
compliance with all underwriting and appraisal standards of
the HOPE for Homeowners Program.
H. R. 3221 152
“(2) EXCLUSION FOR VIOLATIONS. The Board shall prohibit
the Secretary from paying insurance benefits to a mortgagee
who violates the representations and warranties, as established
under paragraph (1), or in any case in which a mortgagor
fails to make the first payment on a refinanced eligible mortgage.
“(3) OTHER AUTHORITY. The Board may establish such
other standards or policies as necessary to protect against
adverse selection, including requiring loans identified by the
Secretary as higher risk loans to demonstrate payment performance
for a reasonable period of time prior to being insured
under the program.
“(i) PREMIUMS. For each refinanced eligible mortgage insured
under this section, the Secretary shall establish and collect
“(1) at the time of insurance, a single premium payment
in an amount equal to 3 percent of the amount of the original
insured principal obligation of the refinanced eligible mortgage,
which shall be paid from the proceeds of the mortgage being
insured under this section, through the reduction of the amount
of indebtedness that existed on the eligible mortgage prior
to refinancing; and
“(2) in addition to the premium required under paragraph
(1), an annual premium in an amount equal to 1.5 percent
of the amount of the remaining insured principal balance of
“(j) ORIGINATION FEES AND INTEREST RATE. The Board shall
“(1) a reasonable limitation on origination fees for
refinanced eligible mortgages insured under this section; and
“(2) procedures to ensure that interest rates on such mortgages
shall be commensurate with market rate interest rates
on such types of loans.
“(k) EQUITY AND APPRECIATION.
“(1) FIVE-YEAR PHASE-IN FOR EQUITY AS A RESULT OF SALE
OR REFINANCING. For each eligible mortgage insured under
this section, the Secretary and the mortgagor of such mortgage
shall, upon any sale or disposition of the property to which
such mortgage relates, or upon the subsequent refinancing
of such mortgage, be entitled to the following with respect
to any equity created as a direct result of such sale or refinancing:
“(A) If such sale or refinancing occurs during the period
that begins on the date that such mortgage is insured
and ends 1 year after such date of insurance, the Secretary
shall be entitled to 100 percent of such equity.
“(B) If such sale or refinancing occurs during the period that begins 1 year after such date of insurance and ends
2 years after such date of insurance, the Secretary shall
be entitled to 90 percent of such equity and the mortgagor
shall be entitled to 10 percent of such equity.
“(C) If such sale or refinancing occurs during the period
that begins 2 years after such date of insurance and ends
3 years after such date of insurance, the Secretary shall
be entitled to 80 percent of such equity and the mortgagor
shall be entitled to 20 percent of such equity.
“(D) If such sale or refinancing occurs during the period
that begins 3 years after such date of insurance and ends
H. R. 3221 153
4 years after such date of insurance, the Secretary shall
be entitled to 70 percent of such equity and the mortgagor
shall be entitled to 30 percent of such equity.
“(E) If such sale or refinancing occurs during the period
that begins 4 years after such date of insurance and ends
5 years after such date of insurance, the Secretary shall
be entitled to 60 percent of such equity and the mortgagor
shall be entitled to 40 percent of such equity.
“(F) If such sale or refinancing occurs during any period
that begins 5 years after such date of insurance, the Secretary
shall be entitled to 50 percent of such equity and
the mortgagor shall be entitled to 50 percent of such equity.
“(2) APPRECIATION IN VALUE. For each eligible mortgage
insured under this section, the Secretary and the mortgagor
of such mortgage shall, upon any sale or disposition of the
property to which such mortgage relates, each be entitled to
50 percent of any appreciation in value of the appraised value
of such property that has occurred since the date that such
mortgage was insured under this section.
“(l) ESTABLISHMENT OF HOPE FUND.
“(1) IN GENERAL. There is established in the Federal
Housing Administration a revolving fund to be known as the
Home Ownership Preservation Entity Fund, which shall be
used by the Board for carrying out the mortgage insurance
obligations under this section.
“(2) MANAGEMENT OF FUND. The HOPE Fund shall be
administered and managed by the Secretary, who shall establish
reasonable and prudent criteria for the management and
operation of any amounts in the HOPE Fund.
“(m) LIMITATION ON AGGREGATE INSURANCE AUTHORITY. The
aggregate original principal obligation of all mortgages insured
under this section may not exceed $300,000,000,000.
“(n) REPORTS BY THE BOARD. The Board shall submit monthly
reports to the Congress identifying the progress of the HOPE for
Homeowners Program, which shall contain the following information
for each month:
“(1) The number of new mortgages insured under this
section, including the location of the properties subject to such
mortgages by census tract.
“(2) The aggregate principal obligation of new mortgages
insured under this section.
“(3) The average amount by which the principle balance
outstanding on mortgages insured this section was reduced.
“(4) The amount of premiums collected for insurance of
mortgages under this section.
“(5) The claim and loss rates for mortgages insured under
“(6) Any other information that the Board considers appropriate.
“(o) REQUIRED OUTREACH EFFORTS. The Secretary shall carry
out outreach efforts to ensure that homeowners, lenders, and the
general public are aware of the opportunities for assistance available
under this section.
“(p) ENHANCEMENT OF FHA CAPACITY. Under the direction
of the Board, the Secretary shall take such actions as may be
H. R. 3221 154
“(1) contract for the establishment of underwriting criteria,
automated underwriting systems, pricing standards, and other
factors relating to eligibility for mortgages insured under this
“(2) contract for independent quality reviews of underwriting,
including appraisal reviews and fraud detection, of
mortgages insured under this section or pools of such mortgages;
“(3) increase personnel of the Department as necessary
to process or monitor the processing of mortgages insured under
“(q) GNMA COMMITMENT AUTHORITY.
“(1) GUARANTEES. The Secretary shall take such actions
as may be necessary to ensure that securities based on and
backed by a trust or pool composed of mortgages insured under
this section are available to be guaranteed by the Government
National Mortgage Association as to the timely payment of
principal and interest.
“(2) GUARANTEE AUTHORITY. To carry out the purposes
of section 306 of the National Housing Act (12 U.S.C. 1721),
the Government National Mortgage Association may enter into
new commitments to issue guarantees of securities based on
or backed by mortgages insured under this section, not
exceeding $300,000,000,000. The amount of authority provided
under the preceding sentence to enter into new commitments
to issue guarantees is in addition to any amount of authority
to make new commitments to issue guarantees that is provided
to the Association under any other provision of law.
“(r) SUNSET. The Secretary may not enter into any new
commitment to insure any refinanced eligible mortgage, or newly
insure any refinanced eligible mortgage pursuant to this section
before October 1, 2008 or after September 30, 2011.
“(s) DEFINITIONS. For purposes of this section, the following
definitions shall apply:
“(1) APPROVED FINANCIAL INSTITUTION OR MORTGAGEE.
The term ‘approved financial institution or mortgagee’ means
a financial institution or mortgagee approved by the Secretary
under section 203 as responsible and able to service mortgages
“(2) BOARD. The term ‘Board’ means the Board of Directors
of the HOPE for Homeowners Program. The Board shall
be composed of the Secretary, the Secretary of the Treasury,
the Chairperson of the Board of Governors of the Federal
Reserve System, and the Chairperson of the Board of Directors
of the Federal Deposit Insurance Corporation, or their designees.
“(3) ELIGIBLE MORTGAGE. The term ‘eligible mortgage’
means a mortgage
“(A) the mortgagor of which
“(i) occupies such property as his or her principal
“(ii) cannot, subject to subsection (e)(1)(B) and such
other standards established by the Board, afford his
or her mortgage payments; and
“(B) originated on or before January 1, 2008.
H. R. 3221 155
“(4) EXISTING SENIOR MORTGAGE. The term ‘existing senior
mortgage’ means, with respect to a mortgage insured under
this section, the existing mortgage that has superior priority.
“(5) EXISTING SUBORDINATE MORTGAGE. The term ‘existing
subordinate mortgage’ means, with respect to a mortgage
insured under this section, an existing mortgage that has
subordinate priority to the existing senior mortgage.
“(6) HOPE FOR HOMEOWNERS PROGRAM. The term ‘HOPE
for Homeowners Program’ means the program established
under this section.
“(7) SECRETARY. The term ‘Secretary’ means the Secretary
of Housing and Urban Development, except where specifically
“(t) REQUIREMENTS RELATED TO THE BOARD.
“(1) COMPENSATION, ACTUAL, NECESSARY, AND TRANSPORTATION
“(A) FEDERAL EMPLOYEES. A member of the Board
who is an officer or employee of the Federal Government
shall serve without additional pay (or benefits in the nature
of compensation) for service as a member of the Board.
“(B) TRAVEL EXPENSES. Members of the Board shall
be entitled to receive travel expenses, including per diem
in lieu of subsistence, equivalent to those set forth in
subchapter I of chapter 57 of title 5, United States Code.
“(2) BYLAWS. The Board may prescribe, amend, and repeal
such bylaws as may be necessary for carrying out the functions
of the Board.
“(3) QUORUM. A majority of the Board shall constitute
“(4) STAFF; EXPERTS AND CONSULTANTS.
“(A) DETAIL OF GOVERNMENT EMPLOYEES. Upon
request of the Board, any Federal Government employee
may be detailed to the Board without reimbursement, and
such detail shall be without interruption or loss of civil
service status or privilege.
“(B) EXPERTS AND CONSULTANTS. The Board shall procure
the services of experts and consultants as the Board
“(u) RULE OF CONSTRUCTION RELATED TO VOLUNTARY NATURE
OF THE PROGRAM. This section shall not be construed to require
that any approved financial institution or mortgagee participate
in any activity authorized under this section, including any activity
related to the refinancing of an eligible mortgage.
“(v) RULE OF CONSTRUCTION RELATED TO INSURANCE OF MORTGAGES.
Except as otherwise provided for in this section or by
action of the Board, the provisions and requirements of section
203(b) shall apply with respect to the insurance of any eligible
mortgage under this section.
“(w) HOPE BONDS.
“(1) ISSUANCE AND REPAYMENT OF BONDS. Notwithstanding
section 504(b) of the Federal Credit Reform Act of
1990 (2 U.S.C. 661d(b)), the Secretary of the Treasury shall
“(A) subject to such terms and conditions as the Secretary
of the Treasury deems necessary, issue Federal
credit instruments, to be known as ‘HOPE Bonds’, that
are callable at the discretion of the Secretary of the
H. R. 3221 156
Treasury and do not, in the aggregate, exceed the amount
specified in subsection (m);
“(B) provide the subsidy amounts necessary for loan
guarantees under the HOPE for Homeowners Program,
not to exceed the amount specified in subsection (m), in
accordance with the provisions of the Federal Credit Reform
Act of 1990 (2 U.S.C. 661 et seq.), except as provided
in this paragraph; and
“(C) use the proceeds from HOPE Bonds only to pay for the net costs to the Federal Government of the HOPE for Homeowners Program, including administrative costs and payments pursuant to subsection (e)(4)(A).
“(2) REIMBURSEMENTS TO TREASURY. Funds received pursuant to section 1338(b) of the Federal Housing Enterprises Regulatory Reform Act of 1992 shall be used to reimburse the Secretary of the Treasury for amounts borrowed under paragraph (1).
“(3) USE OF RESERVE FUND. If the net cost to the Federal Government for the HOPE for Homeowners Program exceeds
the amount of funds received under paragraph (2), remaining debts of the HOPE for Homeowners Program shall be paid from amounts deposited into the fund established by the Secretary under section 1337(e) of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, remaining amounts in such fund to be used to reduce the National debt.
“(4) REDUCTION OF NATIONAL DEBT. Amounts collected under the HOPE for Homeowners Program in accordance with subsections (i) and (k) in excess of the net cost to the Federal Government for such Program shall be used to reduce the National debt.”.