In the aftermath of more than 2.5 million foreclosures, the Federal Housing Administration (FHA) is offering a home-ownership program that will put previously troubled borrowers on the fast track to return to the home-ownership market.
The new program, Back to Work — Extenuating Circumstances, cuts the standard three-year waiting period to only 12 months.
“We understand that families occasionally experience financial difficulties that are simply beyond their control. We already have a policy allowing for exceptions to this waiting period when there is an extraordinary life event. This mortgagee letter is a targeted expansion of that policy,” said Charles Coulter, deputy assistant secretary for single family housing at the United States Department of Housing and Urban Development (HUD).
“As part of FHA’s ongoing mission,” Coulter added, “we want to make sure that qualified borrowers are not being unnecessarily shut out of the market. We are looking forward to working with our industry partners to strengthen our housing market, to protect FHA’s insurance fund, and to make certain access to credit remains available for future generations of homeowners.”
That’s good news for borrowers who lost their homes due to specific financial hardships but can now demonstrate that they have regained previously lost financial ground.
The list of eligible financial hardships reads like a list of housing crisis woes: Chapter 7 or Chapter 13 bankruptcy, deed-in-lieu, forbearance, foreclosure, pre-foreclosure sales, short sales, loan modification and loss of income, employment or both.
For those with loss of income or employment to qualify, the loss must come to 20 percent of previous earnings for at least six months, and applicants must submit copies of applicable termination notices or documentation of changes in employment status.
Additionally, consumers must also meet other verifiable measures to participate in the program. Applicants must have a credit score of at least 500 and a credit history pre- and post- the eligible hardship event that is free from late payments or other major credit issues, including late rental-housing payments and accounts delinquent by 30 days or more.
Applicants must get housing counseling from a HUD-approved counselor at least 30 days but no more than six months before submitting an FHA application, and must also submit proof of current income — usually W-2 forms or federal tax returns that show the desired mortgage would be affordable and sustainable.
For consumers who meet all of the criteria as well as other standing FHA mortgage guidelines, the Back to Work program is now available nationwide through FHA-approved lenders. Once participating lenders determine that mortgage applicants meet all eligibility and policy criteria, a 3.5 percent minimum FHA downpayment requirement will apply. Mortgage insurance and closing costs will also apply.
Only one FHA program is ineligible for the Back to Work program: reverse mortgages.
Earlier research by the Center for Responsible Lending found that more than 2.5 million homes were lost to foreclosure during the housing crisis.
According to Core Logic, a firm providing data and analysis to financial services companies and real estate professionals, the number of homes in some state of foreclosure dropped below 1 million to 949,000 as of July 2013. This figure also represents a drop of 32 percent since July 2012.
Underwater mortgages, properties that are now worth less than their purchase price, also continue to haunt housing recovery. As of May 2013, Core Logic found that in 11 states, more than one in five homes have underwater mortgages. The seven states with the highest numbers of underwater properties were Arizona, Florida, Georgia, Michigan, Nevada, California and Illinois.
As CRL has stated before, the housing crisis is not yet over. But programs that enable formerly troubled borrowers to regain the pride of home ownership and the chance to build family wealth have to be good news.
Charlene Crowell is a communications manager with the Center for Responsible Lending.
