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Expanded FHA-Refinance for Individual Borrowers:
Expanded FHA-Refinance for Individual Borrowers
Summary. Program would permit FHA to provide [up to $300 billion] in new guarantees that would help to refinance at-risk borrowers into viable mortgages. In exchange for the acceptance of a substantial write-down of principal, the existing lender or mortgage holder would receive a short payment from the proceeds of a new FHA loan if the restructured loan would result in terms that the borrower can reasonably be expected to pay. The existing lender or mortgage holder will have a cash payment and no further credit exposure to the borrower. This could potentially refinance between 1 and 2 million loans (and help these families stay in their homes), protect neighborhoods and help stabilize the housing market.
Under the program, a borrower or existing loan servicer of an eligible loan would contact an FHA-approved lender, who would determine the size of a loan that would be consistent with the requirements of the program and that the borrower could reasonably repay. If the current lender or mortgage holder agrees to a write-down that is sufficient to meet the requirements of the program and make the new loan affordable, the FHA-lender will pay off the discounted existing mortgage.
In addition to a first lien, the program gives the government a soft second lien to help defer the government’s costs and prevent unjust enrichment (e.g., borrower flipping). When the borrower sells the home or refinances the loan, the borrower will pay from any profits the higher of (1) an ongoing exit fee equal to 3 percent of the original FHA loan balance; or (2) a declining percentage of any profits (e.g., from 100 percent in year one to 20 percent in year five and 0 thereafter). After year five only the 3 percent exit fee will apply.
Eligibility Requirements for Existing Loans (Requires All of the Following):
* Owner-occupied principal residences only (no investors, speculators or second homes);
* [Existing senior loan being refinanced must have been originated between January 1, 2005 and July 1, 2007];
* To remove any incentive for borrowers to “purposely default,” the borrower must have had a mortgage debt-to-income ratio of no less that 40 percent as of March 1, 2008, and must certify that he/she has not intentionally defaulted on existing mortgage(s). Regulators can make exceptions for involuntary changes after that date;
* Participating mortgage holders/investors must waive any penalties or fees on the existing mortgage and must accept proceeds of the new loan as payment in full;
* Existing mortgage holders/investors must accept their losses – taking substantial write-down sufficient to establish a 5 percent loan loss reserve for the FHA, bring the loan-to-value ratio on the new FHA-loan down to no greater than 90 percent of property’s current appraised value, result in a meaningful reduction in mortgage debt service by the borrower, and to pay all up-front fees for the new loan. Accordingly, to qualify, mortgage holders would need to accept a substantial write-down, receiving no more than 85 percent of the property’s current appraised value as payment in full for the existing loans.
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FHA Housing Stabilization & Homeownership Retention Act
Washington, DC - House Financial Services Committee Chairman Barney Frank today announced new legislation to stem the significant rise in mortgage foreclosures by allowing the Federal Housing Administration to insure and guarantee refinanced mortgages that have been significantly written down by mortgage holders and lenders. The following of a summary of the proposed draft and the full text will be available later today on the Financial Services Committee website at financialservices.house.gov. Mr. Frank announced the proposal today, but warned that the bill text could change before introduction. Mr. Frank will be seeking input and comments regarding this proposal over the next few weeks.
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The FHA Modernization Act Bill:
To modernize and update the National Housing Act and enable the Federal Housing Administration
to use Risk Based pricing to more effectively reach underserved homeowners and for other purposes.
To view the Bill: Click Here
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The FHASecure Initiative and Guidance on Appraisal Practices in
Declining Markets
The President Calls On Congress To Pass Federal Housing Administration (FHA) Modernization Legislation. The President's FHA modernization proposal would lower downpayment requirements, allow FHA to insure bigger loans, and give FHA more pricing flexibility. These reforms would empower FHA to reach more families that need help – first-time homebuyers, minorities, and those with low-to-moderate incomes – and offer more options to homeowners looking to refinance their existing mortgage. To read more click on Whitehouse News
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If you are a homeowner or plan to purchase a home you should contact an FHA approved lender. The FHA's new guidelines can help existing homeowners refinance into a lower interest rate loan with better terms, and they can help new home buyers get an affordable loan for whatever area they are looking to buy a home.
Under FHA Modernization, FHA does not have minimum credit score requirements, although past credit history serves as the most useful guide in determining a borrower's attitude toward credit obligations and predicting a borrower's future behavior. Using FHA's guidelines, lenders will make a credit determination, or approval based on the merits of each parties case. To find out if you qualify for an FHA loan, and how much you can borrow based on your income and debts, you should get pre-qualified today.
In generally, to be eligible for an FHA loan, you must have a valid social security number, have lawful residency in the United States and be of legal age to sign on a mortgage where you live. Lenders will verify income, assets, liabilities, and credit history for all parties on the mortgage loan. With an FHA loan, you may not take an ownership interest in a property without first qualifying for the loan |
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