Yesterday, we received detailed information from HUD regarding the new FHASecure loan. In case you haven’t heard, FHASecure
is a new program that allows for some borrowers to complete a mortgage refinance out of an adjustable mortgage into a fixed rate loan even if they are behind on mortgage payments and have multiple lates or even facing foreclosure.
The initial release indicated the main FHA loan qualifying guidelines of the FHASecure program which are as follows:
- Homeowner must have a history of on-time mortgage payments before their adjustable rate mortgages teaser rate adjusted and reset.
- The adjustable rate mortgage must have adjusted after June 2005 up to December 2009.
- Must have three percent cash or home equity in the home.
- Must have a verifiable and continuous history of employment, and
- Sufficient income to make the mortgage payment as per debt to income guidelines.
According the HUD this new FHA
loan program will help an estimated 240,000 families avoid foreclosure by refinancing to fixed rates.
Here are some more detailed guidelines of what is possible under the FHASecure refinance loan program:
- The mortgage that is being refinance must be a non-FHA adjustable rate mortgage.
- If the borrower is currently behind on mortgage payments, the loan underwriter must be able to determine that the mortgage rate and payment adjustment of the non-FHA adjustable rate mortgage i9s what caused the homeowner to become behind on mortgage payment.
- The borrower must show that they were making timely mortgage payments for the previous 6 months of the ARM loan adjusting.
- If there is enough equity in the home (up to 97%) and the loan amount is below the maximum FHA loan limit, the FHASecure refinance will allow for missed mortgage payments to be added into the new FHASecure loan amount.
- Maximum FHA loan to value (aka: LTV) ratios 97.15% total. Under certain circumstances with loans below $50,000 maybe as high as 98.75% -
- FHASecure refinance program will allow financing of the first non-FHA adjustable, any original purchase second mortgages (i.e. piggyback loans), mortgage closing costs, mortgage prepayment penalties and late charges. FHA loans will also allow the financing of missed payments as noted above. The main requirement of this is that the maximum FHASecure loan amount cannot exceed the maximum geographical FHA loan limits or the loan to value guideline of 97.15% noted above.
- Borrowers must have the capacity to make the new FHASecure loan payments. This is determined by debt to income ratios that FHA home loans will follow. The new FHA loan payment cannot exceed 31% of the borrowers income and the total monthly obligations including the mortgage payment cannot exceed 43% of the income.
This maybe the most important part of these new FHASecure loan guidelines.
- If the new FHASecure loan amount is not enough to pay off the existing first adjustable rate mortgage, loan closing costs and arrearages, the lender may execute a second mortgage at the time of closing to pay the difference. The combined FHASecure first and subordinate non-FHA second mortgage MAY exceed both the geographical FHA loan limits and maximum FHA loan to value guidelines.
What is not clear currently is if the original mortgage lender can carry this second mortgage or only the new mortgage lender. If it is a new mortgage lender, we will need to wait to see which lenders will offer these second mortgages and what their maximum loan to values and income to debt guidelines will be.
The FHASecure program provides an excellent opportunity for distressed homeowners to refinance their mortgages. Especially those who already have mortgage lates or worse facing foreclosure. The FHA loan allows for extremely competitive mortgages rates that would be otherwise unavailable.
We will be keeping an eye on the availability of the FHASecure program for our clients and shortly will be providing some tools to help borrowers and lenders determine if they qualify for the FHASecure refinance program.
Labels: FHA, FHA home loans, FHA loans, FHA Secure Refinance, FHASecure