FHA Home Loans and the Housing Recovery Act
You can't turn on the TV these days without seeing a news story about the U.S. economy in general and the housing market in particular.
Starting in 2007, we began to see record numbers of home foreclosures, a trend that continued into 2008 and shows no sign of slowing. But for many homeowners, help is on the horizon. And it comes in the form of FHA refinance loans.
The recently passed Housing and Economic Recovery Act of 2008 will help "at least 400,000 families" who are struggling with their mortgage payments and facing foreclosure. It will do this by providing FHA-insured refinance loans to switch the homeowners from high-interest ARM loans to fixed-rate mortgages with lower rates. For those accepted into the program, the end result will be a lower monthly payment and more desirable fixed rate that will no longer adjust / increase.
The Federal Housing Administration was created in 1934, during the Great Depression, to make home financing available to a greater number of Americans. The FHA does not actually make home loans to consumers. Instead, they insure certain loans made by private lending institutions.
You've probably heard the term "government-backed financing" before. The FHA loan program is an example of this. By having government insurance in their favor, private lenders are more willing to offer mortgages to borrowers they normally wouldn't qualify (due to credit problems or other qualification issues). The lender is assured of getting their money back on the loan, even if the homeowner defaults and stops making payments. That's what the FHA insurance does.
Traditionally, the FHA loan program was focused on helping buyers in the purchase of a home. But as a result of the aforementioned Housing and Economic Recovery Act, the program is being opened up to homeowners who want to refinance. According to the HUD website, "an estimated 400,000 borrowers in danger of losing their homes will be able to refinance into more affordable government-insured mortgages." The program is slated to begin in October of 2008.
To find out if you are eligible, visit the HUD website or refer to this article. You have to go through an FHA-approved lender to apply for the FHA refinance loan. (Remember, the FHA does not actually offer the mortgage refinance loans. They only insure the loans made by private lenders.)
The goal of this new program is two-fold. It is designed to help struggling homeowners who have adjustable-rate mortgages (ARMs) convert to fixed-rate mortgages. It's also designed to lower their mortgage rates in the process. While the ARM is not inherently evil -- and can even be a good thing if used wisely -- it has played a big role in the subprime mortgage crisis. This program is designed to give homeowners a way out of their ARM loans by refinancing to fixed-rate loans. At the same time, many people will lower their monthly interest rates. Lower rates and less uncertainty -- a double win.
Sadly, the federal government rarely passes legislation designed to help American citizens without putting something into it for their corporate friends. Such is the case here. We recently blogged about the status of Freddie Mac and Fannie Mae and how the government plans to bail them out. Well, the bailout is essentially written into this act as well. Pretty slick, huh?
One thing is certain -- our economy cannot handle foreclosures at the rate they've been happening lately. So the Housing and Economic Recovery Act could be a great thing. Only time will tell.
Starting in 2007, we began to see record numbers of home foreclosures, a trend that continued into 2008 and shows no sign of slowing. But for many homeowners, help is on the horizon. And it comes in the form of FHA refinance loans.
Housing and Economic Recovery Act
The recently passed Housing and Economic Recovery Act of 2008 will help "at least 400,000 families" who are struggling with their mortgage payments and facing foreclosure. It will do this by providing FHA-insured refinance loans to switch the homeowners from high-interest ARM loans to fixed-rate mortgages with lower rates. For those accepted into the program, the end result will be a lower monthly payment and more desirable fixed rate that will no longer adjust / increase.
History of the FHA
The Federal Housing Administration was created in 1934, during the Great Depression, to make home financing available to a greater number of Americans. The FHA does not actually make home loans to consumers. Instead, they insure certain loans made by private lending institutions.
You've probably heard the term "government-backed financing" before. The FHA loan program is an example of this. By having government insurance in their favor, private lenders are more willing to offer mortgages to borrowers they normally wouldn't qualify (due to credit problems or other qualification issues). The lender is assured of getting their money back on the loan, even if the homeowner defaults and stops making payments. That's what the FHA insurance does.
The Refinancing Angle
Traditionally, the FHA loan program was focused on helping buyers in the purchase of a home. But as a result of the aforementioned Housing and Economic Recovery Act, the program is being opened up to homeowners who want to refinance. According to the HUD website, "an estimated 400,000 borrowers in danger of losing their homes will be able to refinance into more affordable government-insured mortgages." The program is slated to begin in October of 2008.
To find out if you are eligible, visit the HUD website or refer to this article. You have to go through an FHA-approved lender to apply for the FHA refinance loan. (Remember, the FHA does not actually offer the mortgage refinance loans. They only insure the loans made by private lenders.)
Getting Away from ARM Loans
The goal of this new program is two-fold. It is designed to help struggling homeowners who have adjustable-rate mortgages (ARMs) convert to fixed-rate mortgages. It's also designed to lower their mortgage rates in the process. While the ARM is not inherently evil -- and can even be a good thing if used wisely -- it has played a big role in the subprime mortgage crisis. This program is designed to give homeowners a way out of their ARM loans by refinancing to fixed-rate loans. At the same time, many people will lower their monthly interest rates. Lower rates and less uncertainty -- a double win.
What's the Catch?
Sadly, the federal government rarely passes legislation designed to help American citizens without putting something into it for their corporate friends. Such is the case here. We recently blogged about the status of Freddie Mac and Fannie Mae and how the government plans to bail them out. Well, the bailout is essentially written into this act as well. Pretty slick, huh?
One thing is certain -- our economy cannot handle foreclosures at the rate they've been happening lately. So the Housing and Economic Recovery Act could be a great thing. Only time will tell.
Labels: Real estate news
posted by Brandon at
2:37 PM
