New FHA Program Launches: Details, and How to Apply

Oct 2, 2008 - The Federal Housing Administration program announced and passed this summer officially rolled out this week with the backing of the Bush administration. Lenders will begin processing the details over the next few days, if they choose to participate.

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The details, which until now were restricted by law from full disclosure, spell out a plan that will enable homeowners to refinance (refinance mortgage rates) into more affordable, government-backed mortgages and stave off foreclosure. The program will insure up to $300 billion in mortgages, helping thousands of borrowers strapped with increasing bills and unrealistic interest rates.

The Congressional Budget Office estimates this plan, called the “Hope for Homeowners” programs, could help 400,000 people during the three-year time period. Critics have long contended that this is merely a symbolic gesture and not a long-ranging, comprehensive solution. Some housing advocates cite the fact that foreclosures are now reaching 300,000 filings a month.

Eligible Applicants:

• Borrowers who took out a mortgage on or before Jan. 1 can apply.
• Eligible borrowers will be those that have made at least six payments on their existing loan, and do not own a second home.

The Deal:

Depending on lender participation, these homeowners can refinance into a 30-year, fixed-rate loan (30 year mortgage rates), one that will probably be at a better interest rate. The FHA will insure the loan for 90 percent of the home’s current value.

The Fine Print:

• Borrowers must verify that they can’t pay the existing loan without help; part of this proof is documenting that monthly mortgage payments were more than 31 percent of their gross monthly income as of March.
• Borrowers who have little or no equity left in their homes (due to declining home prices) will need the lender to forgive the rest of the debt in order to qualify.
• If borrowers financed their homes with two loans, both lenders must agree to refinance, even though the second mortgage lender most likely won’t get paid.

Besides the limited scope of the program, critics are also worried about these last stipulations, as lenders have resisted forgiving debt in the past. Lenders instead prefer to lower interest rates or rearrange payment schedules. But government officials are hoping that with this new formal program, lenders will be encouraged to accept these new arrangements and avoid the hassles of foreclosure.

Borrowers interested in more information can go to http://www.fha.gov or call 800-CALL-FHA.

References:
http://www.washingtonpost.com/wp-dyn/content/article/2008/10/01/AR2008100102861.html?sub=A

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FHA 30 Years Fixed Mortgage Rates     Just One Click! = Current Rate Chart