Over the past two years, the news of more and more families being challenged by mortgage worries has been hard to avoid. The explosion of special terms, sub-prime loans, interest-only loans, and other creative financing options that bombarded prospective homebuyers were, now that we have hindsight, often too good to be true. For some, fine print of such special financing options hid important details of these "teaser rates." Unfortunately, issues associated with an economic downturn have led to escalating food prices, record jumps in gas and home heating prices for the majority of households across the country. At the same time, many of those homebuyers who undertook mortgage commitments through creative financing plans have started to see their once manageable mortgage payment begin an upward climb. Adjustable interest rates have begun to rise and mortgage payments are taking an ever-growing bite out of the family budget.
According to the Federal Housing Administration (FHA) the various problems with mortgages occurred over recent years when many borrowers entered into adjustable rate mortgages (ARMs), deferred interest mortgages (Option ARMs), and the now infamous "subprime" mortgages. The lure of these creative financing options was that the initial mortgage would be low and families would be able to get more home for their investment. Unfortunately now those mortgage rates are adjusting and are resulting in much higher monthly payments which, combined with additional economic burdens, are making it difficult for some homeowners to make ends meet with their income and budget parameters.
On August 31, 2007, President Bush proposed what has become the new FHASecure Refinance Program, which is designed to help homeowners transition into fixed rate mortgages through the FHA. By doing so, homeowners will be able to reduce their monthly mortgage payments while also eliminating the chance that their mortgage payments will increase in the future. By immediately implementing the program, the U.S. Department of Housing and Urban Development (HUD) states that the FHASecure program has already helped an estimated 240,000 families avoid foreclosure. Additionally, families with strong credit histories who have been making timely mortgage payments before their loans reset, but are now in default, may now qualify for refinancing through the FHASecure program. According to HUD, with FHASecure, a lender will not automatically disqualify a borrower because he or she is delinquent on a mortgage loan. In light of falling home values across the nation, lenders may also offer a second mortgage option to mortgage holders to help make up the difference between the value of the property and what the mortgage holder owes.
When homes are empty due to abandonment or foreclosure and remain unsold, they inevitably fall into a state of disrepair and ultimately have a negative impact on the value of the remaining homes in the neighborhood. The goal of enabling mortgage holders to refinance into FHA-insured fixed mortgages is to improve the quality of life for America's communities by helping to reduce the number of mortgages in default and establishing a greater stability in local housing markets.
HUD notes that as long as a homeowner is current on a mortgage and has sufficient income to make the mortgage payment, he or she is eligible for an FHASecure refinance. If a homeowner is delinquent, the default must have been due to the increased payment caused by the resetting of an interest rate or, in the case of an "Option ARM," the "recasting" of the mortgage to "fully amortizing" (a loan where the regular payments will pay off the loan by the scheduled maturity date).
The FHA notes that homeowners who are facing an adjustment or "reset" in their interest rate should apply for an FHASecure refinance before they fall behind on their mortgage. An added benefit of the program is that since FHA-insured mortgages do not allow for prepayment penalties, teaser rates, or balloon payments, they add an extra layer of protection for consumers who may fall victim to tricky lending practices. The FHA adds that FHA-insured mortgages are offered at market rate with terms up to 30 years, and they are fully amortized which means that the homeowner pays toward the principal and interest each month.
Since the borrower is responsible for paying the FHA mortgage insurance premium, the FHA notes that the FHASecure and other FHA programs are not supported by taxpayer dollars. By paying their own way and avoiding foreclosures, borrowers help protect the health of their neighborhood, property values, and tax revenues for the local government. Those interested in learning more about the FHASecure program or who would like to apply for the program can call 1-800-CALL-FHA or visit www.fha.gov/fhasecure to find an FHA-approved lender.
If you are someone you know is facing a mortgage crisis, act now because assistance and guidance are available. You've worked hard to achieve the "American Dream" of homeownership—don't let it slip away.
As with any financial matter, consult with your attorney, tax advisor, or financial planner for proper guidance in your particular situation.
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