FHA Trims Waiting Period for Borrowers Who Experienced Foreclosure
The FHA is reducing the amount of time a borrower must wait in order to receive an FHA-insured mortgage, according to a new mortgagee letter from the Dept. of Housing and Urban Development. Currently set at three years, the FHA now allows eligible borrowers to receive an FHA-insured loan in as little as one year. Eligible borrowers include those who experienced unemployment or other severe reduction in income and were unable to make their monthly payments, and ultimately lost their homes to a pre-foreclosure sale, deed-in-lieu, or foreclosure.
FHA is allowing for the consideration of borrowers who have experienced an economic event and can document that:
- Certain credit impairments were the result of a loss of employment or a significant loss of Household Income beyond the borrower’s control;
- The borrower has demonstrated full recovery from the event; and,
- The borrower has completed housing counseling.
The guidance in the mortgagee letter is applicable to purchase money mortgages in all FHA programs, with the exception of Home Equity Conversion Mortgages.
Borrowers who may be otherwise ineligible for an FHA-insured mortgage due to FHA’s waiting period for bankruptcies, foreclosures, deeds-in-lieu, and short sales, as well as delinquencies and/or indications of derogatory credit, including collections and judgments, may be eligible for an FHA-insured mortgage if the borrower:
- Can document that the delinquencies and/or indications of derogatory credit are the result of an economic event as defined in the mortgagee letter,
- Has completed satisfactory housing counseling, as described in this ML, and
- Meets all other HUD requirements.
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Nearly half (46 percent) of homeowners who received assistance with their mortgage in 2009 through the government’s Home Affordable Modification Program (HAMP) redefaulted on their mortgages, while 38 percent who received loan modifications in 2010 have done so, according to a report by the Office of the Special Inspector General for the Troubled Asset Relief Program.
According to Christy Romero, the special inspector general for the Troubled Asset Relief Program, the Treasury failed to analyze its own data to determine which borrowers were most at risk of losing their homes to foreclosure after receiving government support.
Homeowners in default on loans held by banks or investors can apply to their mortgage servicer to reduce their monthly payments. Under HAMP, investors, servicers and homeowners are all eligible to receive incentive payments to make the loan more affordable.
In all, just 865,100 homeowners were active in the HAMP program as of April. Of those, 10 percent have missed one or two payments but have not yet redefaulted. The overall redefault rate is 26 percent. More info
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Successfully Navigating Short Sales and Foreclosures Takes Assistance from Qualified Real Estate Professionals
Financial hardship has led many homeowners to go through the harrowing process of selling their property through a short sale or losing their home entirely to foreclosure. A homeowner is often forced into this difficult position if negotiations with the lender do not result in a loan modification or a lower monthly mortgage payment through refinancing. Navigating the process behind a short sale or a foreclosure can be less stressful with the assistance of a qualified real estate professional who has the knowledge to guide buyers and sellers successfully through the steps.
Making sense of the story:
Real estate professionals who possess Short Sales and Foreclosure Resource (SFR®) certification have received specialized training in short sales and foreclosures and will have the skills to work on these transactions. The certificate is offered by the NATIONAL ASSOCIATION OF REALTORS®.
A short sale avoids the lengthy and costly foreclosure process by selling the property for less than the amount due on the mortgage. Real estate professionals are a key asset in this process because they can help develop a short-sale package and get homeowners qualified for short sales. They will also assist in setting a price that will bring offers and that has a good chance of being approved by the bank.
From the buyer’s perspective, a professional can help to determine a fair offer and negotiate with the bank. A short sale is a complicated and time-consuming transaction, but it often allows a buyer to purchase a house at a reduced price.
In a foreclosure process, homeowners must protect themselves by ensuring the title is legally transferred to another entity. Otherwise, the previous owners may have moved out while still holding the property’s title, which means they would be liable for the costs and responsibilities of homeownership.
Purchasing a foreclosure can lead to getting a home at a discount, but in many cases a buyer is not able to inspect the property before making a bid. There is often no guarantee of condition, which could detract from any savings in the home’s lower selling price.
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