Bush administration implements expansion of FHASecure assistance for struggling homeownersMortgagePress.comFHASecure, Bush adminstration, Federal Housing Administration, HUD, Steve Preston
The Bush Administration has implemented an expansion of its
flagship mortgage insurance program to assist more homeowners who
are struggling to keep up with their high-cost subprime adjustable
rate mortgages. HUD's Federal Housing Administration (FHA) has
expanded its FHASecure refinancing product to help bring liquidity
to the housing market and insure more mortgages for borrowers who
were late on a few payments and/or received a voluntary mortgage
principal write-down from their lender.
"Starting today, even more families will be able to turn to FHA
to find an affordable mortgage and save their homes from
foreclosure," said HUD Secretary Steve Preston. "This broader
FHASecure refinancing product allows FHA to reach even more
troubled homeowners without putting taxpayers or its insurance fund
at risk."
With this expansion, FHA is on pace to help 500,000 families
refinance into a more affordable mortgage product by the end of
this year. The plan, which is designed to help address the adverse
economic conditions affecting many communities across America, will
help break the cycle of house price depreciation that is being
caused by an increasing number of foreclosures and the overall
contraction in the credit market.
In August 2007, FHA initially modified its refinancing program
to help creditworthy homeowners who missed their mortgage payments
as a result of the payment shock associated with interest rate
resets. Today, FHASecure is expanding its eligibility criteria to
homeowners who have gone into default as a result of temporary
economic setbacks. FHA will adjust the loan-to-value cap to provide
an additional risk control, as follows:
1. Borrowers who are delinquent on their adjustable rate
mortgages, but who were late on no more than two monthly mortgage
payments over the previous twelve months are eligible for the
standard 97 percent loan-to-value (LTV) FHASecure refinance
loan.
2. Borrowers delinquent on their adjustable rate mortgages who
were late on three consecutive monthly mortgage payments or at
three different times over the past twelve months will be eligible
for a 90 percent LTV ratio FHASecure refinance loan.
With these new criteria, the expanded FHASecure can help
additional borrowers access a more viable refinancing option and
will offer lenders an alternative to foreclosing on these
individuals. Lenders may voluntarily write down the outstanding
subprime mortgage principal balances to a 97 percent or 90 percent
LTV ratio depending on the borrowers' circumstances. FHA will also
encourage lenders to make other arrangements, such as subordinate
financing, to "fill the gap" between the existing loan balances and
the FHA-insurable loan amount. The refinanced loan amount backed by
the FHA would be based upon a new appraisal, performed by an
FHA-approved appraiser.
Like most other insurance companies, FHA will begin pricing
insurance premiums according to borrowers' credit risk. To protect
taxpayers, FHA will implement a fair and flexible premium pricing
structure. Previously, FHA had a 'one size fits all' premium
structure that charged borrowers 1.50 percent of the loan balance
upfront and .50 percent annually regardless of their credit
standing. product in a responsible manner.
"Fair and flexible premium pricing is a common sense solution to
helping more lower-income American families stay in their homes and
protecting the solvency of FHA. It is about time our pricing
mechanism rewarded lower income families who live within their
means and pay their bills on time," said Assistant Secretary for
Housing--Federal Housing Commissioner Brian D. Montgomery.
An analysis of FHA borrowers showed that risk-based pricing
actually benefits lower-income American families. Contrary to
conventional wisdom, FHA families with the lower incomes have
higher FICO scores because they live within their means and pay
their bills.
Under the new structure, FHA's upfront mortgage insurance
premium will range from 1.25 percent to 2.25 percent. Borrowers
must continue to adhere to FHA's strict underwriting criteria, such
as fully documenting their income and job history. This premium
structure will preserve lower premium costs for FHA's traditional
borrowers, including low-income and minority families who have a
strong credit history and save for a downpayment.
By charging slightly higher premiums based on risk, FHA will be
able to extend the benefits of its FHASecure program to more
homeowners affected by the volatility in the mortgage market.
Borrowers refinancing into FHA from the subprime market are better
off, even with slightly higher mortgage insurance premiums, because
FHA insurance gives them access to substantially lower interest
rates and lowers their monthly mortgage payments.
For more information, visit www.fha.gov.
