In the aftermath of more than 2.5 million foreclosures, the Federal Housing Administration is now offering a homeownership program that will put previously troubled borrowers on a fast-tracked return to the home ownership market. The new program, known as "Back to Work – Extenuating Circumstance," cuts the standard three-year waiting period to only 12 months.
According to Charles Coulter, HUD's Deputy Assistant Secretary for Single Family Housing, "We understand that families occasionally experience financial difficulties that are simply beyond their control. We already have a policy allowing for exceptions to this waiting period when there is an extraordinary life event. This Mortgagee Letter is a targeted expansion of that policy.
"As part of FHA's ongoing mission," Coulter continued, "we want to make sure that qualified borrowers are not being unnecessarily shut out of the market. We 're looking forward to working with our industry partners to strengthen our housing market, to protect FHA's insurance fund, and to make certain access to credit remains available for future generations of homeowners."
That's good news for borrowers who lost their home because of specific financial hardships but can now demonstrate they have regained previously lost financial ground. The list of eligible financial hardships reads like a list of housing crisis woes:
Chapter 7 or Chapter 13 bankruptcy
Loss of income, employment or both that totaled at least 20 percent of previous earnings for at least six months, including copies of applicable termination notices or changes in employment status
Additionally, consumers must also meet other verifiable measures to participate in the program:
Proof of borrower's current income – usually W-2 forms or federal tax returns that show the desired mortgage would be affordable and sustainable;
Credit history pre- and post the eligible hardship event that is free from late payments or other major credit issues, including rental housing payments and accounts delinquent by 30 days or more;
Credit score of at least 500; and
Housing counseling by a HUD-approved counselor at least 30 days but no more than six months before submitting an FHA application.
For consumers meeting all of these criteria as well as other standing FHA mortgage guidelines, the Back to Work program is now available nationwide through FHA-approved lenders. Once participating lenders determine that mortgage applicants meet all eligibility and policy criteria, the same 3.5 percent minimum FHA down payment requirement will apply. Mortgage insurance and closing costs will also apply.
Only one FHA program is ineligible for the Back to Work program: reverse mortgages.
Earlier research by the Center for Responsible Lending found that more than 2.5 million homes were lost to foreclosure during the housing crisis. According to CoreLogic, a firm providing data and analysis to financial services companies and real estate professionals, the number of homes in some state of foreclosure dropped below the million-mark as of July 2013, to 949,000. This figure also represents a drop of 32 percent since July 2012.
Underwater mortgages, properties that are now worth less than their purchase price, also continue to haunt housing recovery. As of May 2013, Core Logic, the firm specializing in residential property information, found that 11 states had more than 1-in-5 underwater homes. The states with the seven highest numbers of underwater properties were Arizona, Florida, Georgia, Michigan, Nevada, California and Illinois.
As CRL has stated before, the housing crisis is not yet over. But programs that enable former troubled borrowers to regain the pride of home ownership and the chance to build family wealth have to be good news.
Charlene Crowell is a communications manager with the Center for Responsible Lending.