Thursday, August 23, 2007

The FHA Loan May Help More People Avoid Foreclosure

FHA Loans are government-insured, and they used to be the go-to loan for low-income and less-than-perfect-credit borrowers. As with all things government they had more rules, more guidelines, more paperwork and took more time than conventional loans, but they've become quite a bit simpler to get done over the years. With the near-collapse of the Sub-Prime industry, these loans are already starting to come back into vogue. And they might also turn out to be the saving grace of people who might otherwise find themselves in foreclosure.

Officials from HUD and the Treasury Department are collaborating to determine how the Federal Housing Administration can help cash-strapped mortgage borrowers avoid foreclosure. A plan that likely will involve the agency refinancing the loans of homeowners who have not yet missed mortgage payments, but who probably will encounter problems once rates on their adjustable-rate mortgages rise.

Approximately 120,000 refinances will be handled by the agency this year, but FHA officials believe twice as many refinances are possible if Congress passes legislation to modernize the loan program. Lawmakers are considering a hike in the FHA loan limit to upwards of $417,000 in pricey markets--which would help borrowers in California, New York and other expensive states. They're also considering a repeal of the 3-percent down payment requirement and implementation of risk-based insurance premiums. However, Sen. Richard Shelby, R-Ala., could complicate efforts to pass the bill, as he has voiced concerns about the impact of such changes on taxpayers.

This has the potential to help so many people if it passes.

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