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The FHASecure Plan to Refinance Subprime Home Loans

December 19th, 2007 · 2 Comments

There has been much discussion about various rate freeze plans, but it seems that HUD’s Federal Housing Administration (FHA) program that will help an estimated 240,000 families avoid foreclosure by enhancing its refinancing program got almost no mention. Under the announced 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.

FHASecure 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.

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 2008;
  3. Three percent cash or equity in the home;
  4. A sustained history of employment; and
  5. Sufficient income to make the mortgage payment.

This program is separate from the other mortgage rate freeze plan announced a few weeks ago. Between September and mid-December, only 266 such borrowers have cleared all FHA hurdles, according to data compiled by the Department of Housing and Urban Development. FHA Director Brian Montgomery said the program was off to a slow start but is overcoming bureaucratic challenges and gaining momentum even as the national mortgage crisis worsens.

FHA-insured loans have become an important element in the proposed solutions to the subprime mortgage crisis. There is bipartisan Congressional support for the measures and from the Bush administration. FHA mortgages are consumer friendly loans made by private banks that are insured by the government. That makes them especially attractive to lenders because the government guarantee enables the lenders to easily sell off the loans.

Tags: Mortgage Legislation · Mortgage Refinancing

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