Let me try and simplify the new FHA $300 billion “Hope” program and see if it works for you or someone you know. Let’s see what else the housing bill includes and offers.

The FHA mortgage relief bill is designed to help struggling homeowners avoid foreclosure and forced short pays. By design it would write down a mortgage that is higher than the homes current market value and immediately give the homeowner a 10% equity stake and a new more affordable fixed rate loan through the FHA.

Additionally the bill includes a $7,500 tax credit for first time home buyers designed to help more people to own their own home. There are some additional provisions that permanently increase the loan limit to $625,000 to help in the more pricey areas. There is almost $4 billion in neighborhood grants to refurbish homes in blighted areas to avoid abandoned homes from bringing the neighborhood down. There is also $180 million for pre-foreclosure counseling assistance.

On the inner working side it overhauls the FHA that was basically designed in the depression era and now allows the Treasury to have virtually unlimited power to lend money to the FNMA and FHLMC through 2009 and gives the Treasury some control. The idea being that this will help support the housing market and the national economy.

As far as the new home loans, they can cut your loan balance by even 40% and give you instant 10% equity and a new more affordable fixed rate loan with the FHA. But, there are restrictions. To qualify your old loan needs to have been made from 1-05 to 6-07, you must live in the home, own no other rentals and must be spending at least 31% of your GMI. There are of course other regular FHA lending programs that require only 3% down without these restrictions. Ask your lender for more details.

For the lenders side, they need to agree to write down the current loan amount to just 90% of current appraised value – also known as a “hair-cut”. The appraisal must be performed by an FHA approved and licensed appraiser. They must agree to waive all fees and pre-payment penalties. They will also want to document that there is financial hardship. They must run their numbers to see if it’s beneficial to re-do the loan or foreclose.

For the new FHA loan, the borrower must agree to no equity loans for 5 years unless it’s for home maintenance or improvement. Borrower must agree to share the equity if the property increase at 100% of the profit the first year if sold and then 90% the second and then 10% down to 50%, that is the most unusual part of this program.

Bottom line is, there is help out there for some struggling homeowners but for this program there are restrictions and it’s not a free ride. The old lender must agree to a voluntary hair-cut and waive all fees and the new lender will get a piece of the appreciation – if there is any. The new FHA program is set to begin October 1, 2008 and the FHA programs could allow up to 1 to 2 million borrowers to participate.