FHA Secure Program

“Bush Administration to help nearly one-quarter of a million homeowners refinance, keep their homes.”

FHA to implement new “FHA Secure Program” refinancing product.
President Bush announced that HUD’s Federal Housing Administration (FHA) will help an estimated 240,000 families avoid foreclosure by enhancing its FHA refinancing program effective immediately with the new FHA Secure Program. Under the new FHA Secure progam, FHA will allow families with strong credit histories who had been making timely mortgage payments before their ARM loans reset-but are now in default-to qualify for FHA refinancing.

In addition, FHA Secure programs will implement risk-based premiums that match the borrower’s credit profile with the insurance premium they pay; riskier borrowers pay more. This common-sense, FHA Secure program risk-based pricing structure will begin on January 1, 2008.

“Many hard-working American families who were able to make their mortgage payments under the initial teaser terms of the ARM loans are now struggling to make ends meet because their rates have reset,” said HUD Secretary Alphonso Jackson. “FHA Secure initiative will bring stability to the housing market and give eligible families who were in good financial standing before their loans reset a chance to keep their homes.”

The combination of FHA Secure programs, and risk-based premium pricing will permit FHA to return to the role it was originally designed to play, bringing stability to the real estate market by helping break today’s cycle of foreclosures, and price depreciation, and creating much needed liquidity in the now-constricted mortgage market.

FHA has recently experienced a substantial increase in the number of conventional borrowers refinancing into FHA program products. With FHA Secure initiative, it can help even more. The number of these refinancing transactions has tripled since the start of 2006. FHA Secure program transactions are projected to surpass 100,000 FHA loans by the end of the fiscal year. To date, these figures do not include FHA refinances for delinquent borrowers.

The FHA Secure program will operate under the same safe guidelines as the FHA’s existing mortgage insurance program without affecting FHA’s financial health. Eligible homeowners will be required to meet strict underwriting guidelines and pay a mortgage insurance premium (MIP), which offsets the risk to FHA’s insurance fund at no cost to the taxpayer.

The risk-based insurance premium structure will further expand FHA’s reach to additional underserved borrowers, particularly minorities and first-time homebuyers who have been disproportionately lured into exotic mortgages, and enhance the FHA’s overall risk management. The move to risk-based premiums ensures that FHA remains on solid financial footing as a self-financed agency for the long-term.

FHA Secure program like all FHA mortgage products, will be underwritten to ensure the borrowers have the ability to repay the mortgage loan, will require escrow for taxes and insurance, and will continue to offer unprecedented foreclosure prevention assistance. The FHA has never permitted, and will not include prepayment penalties or teaser rates that are common in exotic mortgages and have caused much of the current market troubles.

To qualify for the FHA reset program, eligible homeowners must meet the following five criteria:

A history of on-time mortgage payments before the borrower’s teaser rates expired and loans reset;
Interest rates must have or will reset between June 2005 and December 2009;
Three percent cash or equity in the home;
A sustained history of employment; and
Sufficient income to make the mortgage payment.

“FHA Secure initiatives designed for families who are good borrowers but were steered into high-cost loans with teaser rates,” said Assistant Secretary for Housing FHA Commissioner Brian Montgomery. “These homeowners, many of whom are minorities, need a safe, affordable mortgage product that will help build wealth. All FHA borrowers pay mortgage insurance premiums to offset claims to the FHA insurance fund, and ultimately prevent risk to the taxpayer.”

FHA Secure programs will also bring much-needed liquidity to the mortgage market. FHA anticipates more mortgage lenders will offer FHA secure program insured loans, pool them, and securitize them with the Government National Mortgage Association (Ginnie Mae), which has the full faith, and credit of the U.S. government. This guarantee makes Ginnie Mae’s mortgage backed securities the safest on the market and helps to channel greater capital into the housing market, benefiting U.S. homeowners.

Since its inception in 1934, FHA has helped almost 35 million people become homeowners, making it the largest insurer of mortgages in the world. The 109th Congress introduced the Expanding American Homeownership Act in June 2006 which would enable FHA mortgages to be a safe option for more underserved low- and moderate-income and minority families so they can achieve the American Dream of homeownership. President Bush also urged Congress to quickly pass the Administration’s FHA modernization proposal to help more families in need. The FHA Secure Program is a temporary program, and it is set to end by the end of 2008. He also stated that the FHA Secure program is not a ‘bailout’ program.

The FHA Secure program may help you save your home or to avoid costly readjustments with your current ARM mortgage. FHA Secure programs will not allow for refinance cash out, and is only good for Rate/Term FHA refinances. A new FHA appraisal will be ordered to comply with FHA guidelines. The FHA Secure programs also have no restriction on the loan to value, but will be subject to FHA case by case approvals. Current FHA Secure rates are generally higher than your normal FHA mortgage rates.