Published on October 30, 2008
GUIDELINE HEFI HUD HOMEOWNER INVESTOR Terms 10 to 15 years Indefinite Residency All types Primary - Owner Occupied HUD rule restricts this products HEFI rule provides for use among No limit, max of four (4) HEFIs per Number of homes owned Can only own one home use to a limited number of every homeowner or investor in Social Security number homeowners America Protects investor by making sure Cannot be in a BK or Bankruptcy Cannot currently be in BK homeowner isn't playing any contemplating the filing of such games and hiding things. Must have made 6 on-time Mortgage Payment History No specific guideline payments Must have been originated on or HEFI rule helps lenders workout Eligible Loans No specific guideline after 01/01/2008 their entire portfolio. Must be granted for periodic Protects investor from the Access to Property No specific guideline inspection property being devalued. Get permission if over $20,000 No specific guideline but receipts Alterations to Property and does not affect the value of for improvements over $2,500 get the HEFI or TIC interest credited to the homeowner HEFI rule gives additional options Event of Default - homeowner HEFI rule would potentially keep to protect investment by allowing Right of investor to self-perform fails to make obligated Standard FHA guidelines for loss homeowner current and keep investor to keep homeowner's and adjust the HEFI interest payment (mortgage, mitigation them in the house. HUD rule obligations current and to adjust percentage insurance, taxes, etc.) potentially leads to foreclosure. the HEFI interest percentage in favor of the investor Can transfer interest in HEFI Gives investor flexibility in terms Transfer by Investor percentage at anytime to any Stays with HUD of managing their portfolio and person or entity liquidity. At any time to a bona fide 3rd At any time to a bona fide 3rd Sale of Property to 3rd Party Party at FMV Party at FMV Can be re-purchased by Homeowner can recapture their Redemption of equity and homeowner at any time after the full equity and appreciation if they future appreciation by Cannot be done first 12 months based on the can afford to under the HEFI homeowner current FMV of the property option.
Either party may submit an appraisal. The Responding Party shall have 30 days to accept or FMV will be determined by an HEFI option is more flexible and Determination of FMV order a 2nd appraisal. If no appraisal ordered by HUD from fair. response in 30 days, original their database of appraisers submission stands as FMV. A 3rd appraisal will settle any disputes HEFI interest percentage = equity 1.) Shared Equity (SEM) = FMV (difference between newly minus Note amount (100% year HEFI option allows for a potential Equity Determination modified loan amount and FMV) one down to 50% after year 5) 2.) full recapture of monies written and a percentage of the future Shared Appreciation (SAM) = 50% down. appreciation of value over initial FMV Not allowed for first 5 years Subordinate Financing Subject to approval by investor except to make certain repairs Refinance Not allowed in the first 12 months Not allowed in first 12 months HUD can choose to share a portion Investor does not have to throw Sharing of equity or Everything is owned 100% by of the 50% of the future away monies due in order to get a appreciation with Investor investor appreciation with investor. HUD loan off their books with the HEFI will not share equity. option. Recorded as a lien in 2nd position Recorded SEM in 2nd position and Recording on title stating the % due SAM in 3rd position Allows for multiple exit strategies, Pooling of HEFIs can be pooled into large Cannot be pooled along with diversification and Equity/Appreciation institutional sized blocks. marketability. Homeowner is solely responsible Homeowner is solely responsible The HEFI investor has no for all costs, including property for all costs, including property responsibility for these payments. Homeowner Responsibilities taxes, insurance, third party liens, taxes, insurance, third party liens, Maintains 100% ownership rights The HEFI is strictly a "passive" all major and minor repairs and all major and minor repairs and investment similar to ownership of upkeep and utilities, etc. upkeep and utilities, etc. common stock in a corporation Current DTI must be over 31%. DTI No specific guideline New DTI must be under 31/43 or 38/50 on exception basis. Eligible properties 4 unit max, no co-ops 1-unit only
Upfront - 3% of base loan amount HEFI option eliminates the high Mortgage Insurance None . Yearly - 1.5% of base loan cost of mortgage insurance amount MAX mortgage amount no limit $550,440 Closing costs No specific guideline 1% max origination fee Typically around $500 plus any Other costs Standard closing costs fees associated with modification FIGURES USED FOR EXAMPLE HEFI HUD Fair Market Value (FMV): $80,000 Write down by Investor $28,000 $28,000 Un-Paid Balance (UPB) $100,000 Equity Share to Investor 100% none New Loan Amount: $72,000 Equity Obligation in Favor of $8,000 $4,000 to $8,000 investor Appreciation Share to Investor 50% possibly none Appreciation Share to 50% 50% Homeowner INVESTOR BENEFITS: Recapture of current eqquity plus a percentage of appreciation. Opportunity to trade in capital Possibly none. May receive a Monetary markets and become instantly small portion of appreciation. liquid. Value of HEFI offsets write- down. Can keep on the books (modification) or refi into a 3rd Portfolio Gets loan off books. party loan. Gets to maintain ownership & benefits of HEFI. Must take write down and have NEGATIVES: Must be able to take write down. virtually no way of recuperating their losses. HOMEOWNER BENEFITS: Gets new loan at 90% or less than Gets new loan at 90% to 95% or current FMV. Enjoys reduced less than current FMV. Enjoys monthly payment obligations. reduced monthly payment Monetary Gets opportunity to earn a obligations. Maintains a 50% percentage of the future share of appreciation over FMV at appreciation. time of new loan.
Similar to an interest free loan with only having to share a Can stay in home assuming new percentage of appreciation. Can loan at 90% gives them an use HEFI as a negotiation tool to affordable payment. Not Personal keep their family in their home. obligated to pay back debt written Can buy out equity and down and must share 50% of appreciation at current FMV appreciation. calculation. Must share up to 100% of Must repay, at some point, difference between FMV and new NEGATIVES amount written down, must share loan amount, must share 50% of a small portion of appreciation. appreciation and cannot buy-out the equity or appreciation.
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