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FHA's "Back To Work" Program

by Mark Rieger, Mark Rieger Realty

Just recently, the Department of Housing and Urban Development on Thursday created a new set of guidelines under the FHA program specifically geared toward homeowners and prospective homeowners affected by the recent recession. The program is called the “Back to Work” program.

 

The FHA stated, “As a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income, were unable to make their monthly mortgage payments, and ultimately lost their homes to a pre-foreclosure sale, deed-in-lieu, or foreclosure. Some borrowers were forced to file for bankruptcy to discharge or restructure their debts. Because of these recent recession-related periods of financial difficulty, borrowers’ credit has been negatively affected. FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage."

 

The Back to Work program will require prospective borrowers to document the nature of the economic event that resulted in their derogatory credit. They will also have to prove that there has been a recovery from said event. For the purposes of this program, an “economic event” is defined as "any occurrence beyond the borrower’s control that results in loss of employment, loss of income, or a combination of both, which causes a reduction in the borrower’s household income of twenty (20) percent or more for a period of at least six (6) months.  The ‘Onset of an Economic Event’ is the month of loss of employment/income." 

 

Lenders will consider the event to have caused the derogatory credit if:

 

  • The prospective borrowers had satisfactory credit prior to the event onset;
  • The prospective borrowers' derogatory credit occurred after the onset of the event;
  • The prospective borrowers have reestablished satisfactory credit for at least 12 months since the end of the event.

 

Lenders will consider borrowers to have reestablished satisfactory credit if:

 

  • The borrower has no late housing or installment debt payments for the past 12 months;
  • Open mortgage accounts are current and have been paid on time for the past 12 months;
  • Borrowers have adhered to the agreement of any open modification plan for the past 12 months;
  • Borrowers complete a course of Housing Counseling in person, via telephone, via internet or other methods approved by HUD (who provides a list of counseling agencies). 

If you believe you could benefit from the “Back to Work” program, you can apply for an FHA Back to Work mortgage with any FHA-approved lender. The mortgage approval process is the same for any other FHA-insured mortgage.

FHA is raising fees and tightening lending standards

by Mark Rieger, Duke Warner Realty

It's hard to believe that when the real estate market has been struggling around the nation, new regulations and higher fees going into effect will make it even tougher to get a loan. The following information was released in the last 48 hours and has lots of people scrambling to get their purchase in the works before the new regulations and fees take effect.

WASHINGTON - The Federal Housing Administration (FHA) is raising fees and tightening lending standards to shore up its strapped finances and avoid a taxpayer bailout. The government agency has seen its losses rise with the foreclosure rate. Its reserves have sunk below the minimum level required by Congress. A healthy FHA is vital for the housing market because it insures roughly 30 percent of new loans, and is the largest backer of mortgages to first-time buyers.

The changes, which will go into effect in the first half of the year, "are among the most significant steps to address risk in the agency's history," FHA Commissioner David Stevens said in a prepared statement.

The FHA does not make loans, but rather offers insurance against default. Borrowers are willing to pay for the insurance because FHA loans only require down payments of 3.5 percent of the purchase price — and that didn't change.

The new policies, to be announced Wednesday, are designed to bring more revenue into the agency, while at the same time keeping loans available.

Under the changes, homebuyers will:

  • Pay an upfront mortgage insurance premium of 2.25 percent of the total loan amount, up from the current level of 1.75 percent. A borrower taking out a $200,000 mortgage would pay a $4,500 fee, for example, rather than the current fee of $3,500. Borrowers will still be able to wrap these fees into the total amount borrowed. FHA officials also plan to ask Congress to increase the maximum annual premium that FHA can charge.
  • Need a credit score of at least 580 to qualify. Many FHA lenders already require a higher score, but there had been no standard requirement across the program. Borrowers with a score lower than 580 will need a down payment of at least 10 percent.

The changes come as borrowers with loans backed by the agency have increasingly been falling into default. More than 18 percent of FHA borrowers are at least one payment behind or in foreclosure, compared with 14 percent for all loans, according to the Mortgage Bankers Association.

If you have any questions, or if you or anyone you know is looking to Buy or Sell real estate in Central Oregon, please let me know. I'm here to help.

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