The U.S. Department of Housing and Urban Development began offering the new “FHASecure” refinance loan on August 31, 2007 as part of an initiative to quell foreclosures and help homeowners refinance subprime loans and other adjustable-rate mortgages that are due to reset.
The program is available to homeowners who are currently in default on their existing mortgages, a significant policy change for the FHA who previously wouldn’t insure delinquent borrowers.
“Many hard-working American families who were able to make their mortgage payments under the initial teaser terms of the exotic loan are now struggling to make ends meet because their rates have doubled or tripled,” said HUD Secretary Alphonso Jackson.
“FHASecure will bring stability to the housing market and give eligible families who were in good financial standing before their loans reset a chance to keep their homes.”
Keep in mind that not everyone behind on their mortgage is eligible for an FHASecure loan, and in order to qualify you must meet five basic requirements.
First and foremost, you must exhibit a history of making on-time mortgage payments during the fixed or teaser portion of your previous loan. So if you were making late payments before your mortgage reset, you likely won’t be eligible for the program. In fact, mortgage payments six months prior to the reset must be free of late mortgage payments in order to qualify.
Additionally, interest rates on your current loan must have or be forecast to reset between June 2005 and December 2008 to be eligible for refinancing with FHASecure. The previous loan must have already reset, so if you’ve got a fixed rate loan or an adjustable rate mortgage that hasn’t reset, you won’t be able to refinance with FHASecure. And don’t stop making mortgage payments in order to qualify for the program as the FHA has already warned borrowers that doing so may result in a declined application.
Straight from the HUD Mortgagee Letter: “FHA reserves the right to reject for insurance those mortgage applications where it appears that a loan officer or other mortgage employee suggested that the homeowner could stop making their payments…”
Keep in mind that missed payments may be rolled into the new loan equity permitting if you do qualify, so it’s not advisable to just abandon your mortgage.
You also need a minimum of 3% cash or equity in your home, a sustained history of employment (typically two years), and sufficient income to continue making mortgage payments.
FHASecure is only available for primary residences, so borrowers with delinquent mortgages attached to second homes and investment properties need not apply (as with any FHA loan). And the mortgage being refinanced must be a non-FHA arm, so no previous FHA loans can be refinanced through the program.
As with a typical FHA mortgage, the same basic guidelines will apply to an FHASecure loan, including debt-to-income ratio at 31/43, income and asset requirements, loan limits, FHA mortgage insurance, and more. The only difference is that the maximum loan-to-value can be as high as 97.75%.
The FHASecure refinance program will require an escrow impound account for both property taxes and insurance along with a mortgage insurance premium. The FHASecure mortgage insurance premium will be based on a risk-based pricing structure, which will commence on January 1, 2008. Borrowers who are deemed higher-risk will pay higher insurance premiums than lower-risk borrowers.
Max loan amounts are subject to current FHA loan limits, though second mortgages are permitted behind an FHASecure if the loan doesn’t cover the existing first lien.
All FHASecure loan applications must be signed no later than December 31, 2008.
Rant start. The big question is how many borrowers currently behind on mortgage payments can demonstrate the ability to meet these requirements? And how many of those borrowers should remain in their homes, especially those who lied to qualify for high-risk loans to begin with? And will this temporary solution lead to long term results for at-risk homeowners? Rant stop.
The FHASecure program is projected to help 240,000 families avoid foreclosure who were making timely payments before adjustable-rate mortgages reset.
Update: The Federal Housing Administration said it is willing to refinance certain delinquent borrowers with interest-only and payment-option mortgages under the FHASecure loan program.