As it becomes increasingly difficult to qualify for a refinanced mortgage, homeowners may want to turn to the Federal Housing Administration (FHA) for help. A new loan program, called FHASecure, is intended to help borrowers at risk of foreclosure to move quickly into more affordable loans.

FHASecure is a new initiative aimed at providing assistance to homeowners at risk of losing their homes to foreclosure. The FHA estimates that the program will help nearly a quarter of a million American families avoid this financial nightmare.

Refinancing just in time

FHASecure is designed for families who are good borrowers, but were steered into high-cost loans with teaser rates," said Assistant Secretary for Housing-FHA Commissioner Brian Montgomery in a press release distributed by the FHA. "These homeowners, many of whom are minorities, need a safe, affordable mortgage product that will help build wealth," he explained.

Under the new FHASecure plan, the FHA will allow mortgage holders to qualify for refinancing in time to avoid the expensive "resets" associated with adjustable rate mortgages. When ARM loans, as well as others that involve rate adjustments, reach a certain maturity date, they reset to higher interest rates. Some homeowners have seen their mortgage payments double thanks to these changes. Many of these loans started off with low introductory "teaser" rates that translated into cheaper payments and the ability to qualify to buy more expensive homes. When those rates fade, though, the teaser payments will be replaced with much higher ones, and that phenomenon has hurled many borrowers into an abrupt financial crisis. As a result, a record number of homeowners are delinquent on their mortgage payments and are headed for foreclosure unless they can get some relief by refinancing to a more affordable mortgage.

Qualifying for FHASecure

The FHASecure initiative will operate under the same rather conservative and risk-averse guidelines as the FHA's existing mortgage insurance program.

To qualify for a mortgage refinance, 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.
  5. Sufficient income to make the mortgage payment.

Eligible homeowners must meet strict underwriting guidelines and pay for mortgage insurance to help protect the FHA from risk. This prevents the cost being passed on to the American taxpayer.

When figuring the mortgage insurance premiums, the FHA will implement a new set of risk-based calculations to match the borrower's credit profile with the amount of the insurance premium they pay. This means that those who represent a higher risk-because of bad credit-will pay more than those with good credit. If your profile is positive, you'll be rewarded with less expensive premiums. The new risk-based pricing structure is scheduled to go into effect at the beginning of January. For millions of mortgage-holding homeowners, that's something very much worth saying "Happy New Year" for.

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Published on December 2, 2007