Wednesday, December 12, 2007

Help On The Way From The FHA

On August 31, 2007, President Bush announced a new Federal Housing Administration (FHA) plan to help an estimated 240,000 families avoid foreclosure. Under the new "FHASecure" plan, FHA will allow families with strong credit histories who had been making timely mortgage payments before their loans reset--but are now in default--to qualify for refinancing.
In addition, FHA will implement risk-based premiums that match the borrower's credit profile with the insurance premium they pay (i.e., riskier borrowers pay more.) The risk-based pricing structure will begin on January 1, 2008.

Bringing Stability To The Market

The combination of FHASecure and risk-based premium pricing will permit FHA to return to the role it was originally designed to play, bringing stability to the real estate market by helping break today's cycle of foreclosures and price depreciation and creating much needed liquidity in the now-constricted mortgage market.

According to the FHA, the number of conventional borrowers refinancing into FHA products has tripled since the start of 2006, with the FHA projecting its transactions will surpass 100,000 loans by the end of the fiscal year. (As of this writing, these figures do not include refinances for delinquent borrowers.)

The FHASecure initiative will operate under the same safe guidelines as the FHA's existing mortgage insurance program without affecting FHA's financial health. Eligible homeowners will be required to meet strict underwriting guidelines and pay a mortgage insurance premium, which offsets the risk to FHA's insurance fund at no cost to the taxpayer.

New Structure Expands FHA's Reach

The risk-based insurance premium structure will further expand FHA's reach to additional underserved borrowers, particularly first-time home buyers and others who have disproportionately taken out exotic mortgages, and enhance the FHA's overall risk management. The move to risk-based premiums ensures that FHA remains on solid financial footing as a self-financed agency for the long-term.

FHASecure, like all FHA products, will be underwritten to ensure the borrowers have the ability to repay the loan, will require escrow for taxes and insurance, and will continue to offer unprecedented foreclosure prevention assistance. The FHA has never permitted and will not include pre-payment penalties or teaser rates that are common in exotic mortgages and have caused much of the current market troubles.

Who Qualifies

To qualify for FHASecure, eligible homeowners must meet the following five criteria:


  1. A history of on-time mortgage payments before the borrower's teaser rates expired and loans reset;

  2. Interest rates must have or will reset between June 2005 and December 2009;

  3. Three percent cash or equity in the home;

  4. A sustained history of employment; and

  5. Sufficient income to make the mortgage payment.

FHASecure will also bring much-needed liquidity to the mortgage market. FHA anticipates more lenders will offer FHA-insured loans, pool them, and securitize them with the Government National Mortgage Association (Ginnie Mae), which has the full faith and credit of the U.S. government. This guarantee makes Ginnie Mae's mortgage-backed securities among the safest on the market and helps to channel greater capital into the housing market, benefiting U.S. homeowners.

Learn More

For more information about FHASecure and other FHA products, call 1-800-CALL-FHA or visit http://www.fha.gov/ or http://www.hud.gov/. For a list of your local home-ownership center or a HUD-approved housing counseling center, see www.HUD.gov/offices/hsg/sfh/hcc/hcs.cfm.

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