BUSH
ADMINISTRATION TO HELP NEARLY ONE-QUARTER OF A MILLION
HOMEOWNERS REFINANCE, KEEP THEIR HOMES
FHA to
implement new "FHASecure" refinancing product
WASHINGTON -
President George W. Bush today announced that HUD's Federal
Housing Administration (FHA) will help an estimated 240,000
families avoid foreclosure by enhancing its refinancing
program effective immediately. Under the new FHASecure
plan, FHA will allow families with strong credit histories
who had been making timely mortgage payments before their
loans reset-but are now in default-to qualify for
refinancing.
In addition, FHA will implement
risk-based premiums that match the borrower's credit profile
with the insurance premium they pay-i.e., riskier borrowers
pay more. This common-sense, 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 exotic loan are now
struggling to make ends meet because their rates have
doubled or tripled," said HUD Secretary Alphonso Jackson. "FHASecure
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 FHASecure
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 products. With FHASecure, it
can help even more. The number of these refinancing
transactions has tripled since the start of 2006. FHA's
transactions are projected to surpass 100,000 loans by the
end of the fiscal year. To date, these figures do not
include refinances for delinquent borrowers.
The FHASecure
initiativewill 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, 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.
FHASecure, like all FHA
products, will be underwritten to ensure the borrowers have
the ability to repay the 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 pre-payment penalties or
teaser rates that are common in exotic mortgages and have
caused much of the current market troubles.
To qualify for FHASecure,
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.
"FHASecure is 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."
FHASecure will also
bring much-needed liquidity to the mortgage market. FHA
anticipates more lenders will offer FHA-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 to be
a safe option for more underserved low- and moderate-income
and minority families so they can achieve the American Dream
of homeownership. Today, President Bush also urged Congress
to quickly pass the Administration's FHA modernization
proposal to help more families in need.
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