FHA Secure Housing Bill

There is positives and negatives in this new FHA Secure Housing bill.  A portion of this FHA secure housing bill applies to qualified homeowners facing foreclosure in their primary residence and who have an Adjustable Rate Mortgage payment that exceeds 31% of their total household income as of March 1, 2008. 

The FHA secure housing bill states that the troubled loan must have originated no later than Jan. 1, 2005.  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 to a lower fixed-rate, 30-year mortgages backed by loan guarantees from the Federal Housing Administration. Investors or investment properties will not qualify.  The caveat is that the original lenders would have to agree to take a loss on their loans.

Borrowers at risk of foreclosure may be able to refinance into a more affordable loan backed by the Federal Housing Administration. Of course, that is only after lenders “volunteer” to write-off a portion of what they are due to help out borrowers.  There are conditions in the program, lenders write down the loan balance to an amount that doesn't exceed 90% of the current appraised value of the home.  Borrowers who participate in the FHA secure housing bill program will be penalized if they want to refinance or sell the home in the first five years.   Another downside to the FHA secure housing bill is that borrowers would have to share future price appreciation with the federal government.

Lenders can pick and choose which loans to refinance, so you should check with the bank or financial company servicing your mortgage.  It may be weeks before they make decisions concerning the new guidelines of the FHA secure housing bill and assess individual loans.  Keep your expectations limited.  Servicers are going to be reluctant to take the government up on their offer.  The earliest they'll start taking them up on it is early next year. And even then it's likely to be modest.

Once you are accepted into this new FHA secure housing bill program and you sell during the first five years, you must agree to share 50 percent of any profits from the resale of your home with the government. What's more, homeowners can only retain equity gains based on a sliding scale. The homeowner would have zero equity from a sale in the first year, with the amount rising 10 percent in each succeeding year and capping at 50 percent from a sale in year five and thereafter.

The equity must be repaid because the maximum amount on the new loans will be capped at 90 percent of the current market value, which automatically gives the previously troubled homeowner 10 percent equity in the home.