President George W. Bush has anounced that HUD's Federal Housing Administration (FHA) will help families avoid foreclosure by enhancing its refinancing program effective immediately. Under the new 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.
In addition, FHA will implement risk-based premiums that match the borrower's credit profile with the insurance premium they pay-i.e., riskier borrowers pay more. This common-sense, risk-based pricing structure will begin on January 1, 2008. 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, 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.
The FHASecure initiative will operate under the same safe guidelines as the FHA's existing mortgage insurance program without affecting FHA's financial health. Eligible homeowners will be required to meet strict underwriting guidelines and pay a mortgage insurance premium, which offsets the risk to FHA's insurance fund at no cost to the taxpayer. The risk-based insurance premium structure will further expand FHA's reach to additional underserved borrowers, particularly minorities and first-time homebuyers who have been disproportionately lured into exotic mortgages, and enhance the FHA's overall risk management. The move to risk-based premiums ensures that FHA remains on solid financial footing as a self-financed agency for the long-term.
FHASecure, like all FHA products, will be underwritten to ensure the borrowers have the ability to repay the loan, will require escrow for taxes and insurance, and will continue to offer unprecedented foreclosure prevention assistance. The FHA has never permitted and will not include pre-payment penalties or teaser rates that are common in exotic mortgages and have caused much of the current market troubles.
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 2009;
•3. Three percent cash or equity in the home;
•4. A sustained history of employment; and
•5. Sufficient income to make the mortgage payment.
FHASecure is designed for families who are good borrowers but were steered into high-cost loans with teaser rates, 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. FHASecure will also bring much-needed liquidity to the mortgage market. FHA anticipates more lenders will offer FHA-insured loans, pool them, and securitize them with the Government National Mortgage Association (Ginnie Mae), which has the full faith and credit of the U.S. government. This guarantee makes Ginnie Mae's mortgage-backed securities the safest on the market and helps to channel greater capital into the housing market, benefiting U.S. homeowners.
Let's all keep an ear out for our community. This will help to bring a sense of calm that is needed so much in our industry. Remember this is not a cure-all for everyone. Keep going your part to make sure that our community gets the help it needs. I have refused to put individuals and families in those exotic high-cost loans that has put our industry in this credit crunch. When we look out for our clients not only in the short term but more important the long term we will continue to improve our industry. This will come back ten fold with happy clients that know we all had the best outlook for them not just our check book. These happy clients will be more than happy and willing to recommend us to their friends and families as the Trusted Advisor.
Will Merritt
Vice-President of Operations
Florida Mortgage Services LLC
727.530.7208
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