In an effort to curtail rising foreclosure rates across the country (in some areas it's being called an epidemic), the Federal Housing Administration (FHA) recently announced its FHA Secure program.
The FHASecure program is actually a broadening of the rules regulating FHA-insured loans. With FHASecure, people with a non-FHA adjustable-rate mortgage that are facing or in foreclosure can refinance to an FHA fixed-rate mortgage. Prior to the FHASecure program, if a homeowner was already in foreclosure, they were pretty much out of luck.
Here's how it works. If a homeowner has a solid mortgage payment record and has only fallen into trouble when their ARM adjusted, they may be eligible for FHA refinancing. The rules are simple. A homeowner must have not missed a mortgage payment for six months prior to their mortgage payment and rate rising.
Sufficient income, as well as a history of sufficient income, to pay for the refinanced mortgage is also a requirement. Without the minimum required income for the new fixed-rate loan, a consumer probably won't qualify for the FHASecure program.
Finally, a homeowner must have a minimum of three percent equity in their home. In other words, they must not owe more than 97 percent of the home's value. So if the home is appraised at $100,000, they can only have an outstanding mortgage of $97,000 or less.
The FHA released this statement on its website, www.fha.gov.
"FHASecure is designed for families who are good borrowers but were steered into high-cost loans with teaser rates," said Assistant Secretary for Housing-FHA Commissioner Brian Montgomery. "These homeowners, many of whom are minorities, need a safe, affordable mortgage product that will help build wealth. All FHA borrowers pay mortgage insurance premiums to offset claims to the FHA insurance fund and ultimately prevent risk to the taxpayer."
Consider this a second chance for people, who through no fault of their own, are suddenly facing the threat of foreclosure because of rising mortgage payments associated with ARM adjustments. With record foreclosure rates in some parts of the country, this is a much needed boost for the economy. In Michigan, for example, foreclosures in August 2007 were up 126 percent over August 2006, according to the Detroit Free Press.
Hopefully FHASecure will do what's its intended to do, help people keep their homes and boost the economy. Only time will tell if it's enough, but at least it's a start in the right direction. Avoiding foreclosure should be the top priority of everyone - mortgage companies, the government, and homeowners alike. Foreclosure is a losing proposition for everyone and the FHA should be applauded for realizing the severity of the current problem and doing something to fix it.
-- Published on Sep 24, 2007