Can FHASecure Save Your Home?

The big news from Washington is that the federal government is going to bail out many borrowers who now face foreclosure. Estimates vary regarding how many homeowners will be impacted, but the important point is that hundreds of thousands of loans are likely to be refinanced in the next two years under the new program.

Called FHASecure, the new approach from HUD is really little more than the usual FHA mortgage plan but with one important change: Under FHASecure ARM borrowers who have late payments or no payments related to loan re-sets will still be able to qualify for FHA financing.

How liberal is the FHASecure program? According to one senior HUD official, even borrowers with 6 to 10 late or missed payments will still be considered.

The idea of forgiving late or missed payments because of toxic ARM resets should be welcomed by everyone. If you now have a loan where the payments have increased significantly or where you expect grossly higher payments in the near future, you should be speaking to lenders about the FHASecure program.

To understand what's going on with FHASecure, let's take a look at some of its features and requirements.

First, when is your loan scheduled to reset? Resets between June 2005 and December 2009 have been targeted under the program. Notice that the FHA doesn't care when the loan was originated, but it does want to know about reset dates. This means you might have gotten a 3/27 mortgage in 2002 that resets in 2005 and qualify for the FHASecure program. Or, you might finance today and still qualify even though your reset is not scheduled for a year or two.

Second, do you have three percent cash or equity? This requirement might change because FHA modernization is now being debated on Capitol Hill. Under the House bill borrowers could finance with nothing down under FHA modernization. On the Senate side, their version of FHA modernization requires a 1.5 percent downpayment. Keep your eye on the Capitol Hill debate because it could mean that you'll soon be able to refinance under FHASecure with less equity then today's rules require.

Third, what's your credit standing? You must have a solid credit report to qualify for the FHASecure program, with the exception of mortgage payments delayed or not made because of ARM resets.

Fourth, can you document your income? Unlike toxic loan programs which permitted borrowers to make loan applications with unverified income, that's not allowed under FHA rules. If you want to participate in the FHASecure program you generally will need tax returns, pay stubs, W-2 forms and other hard evidence to support income claims.

Fifth, can you prove your employment or verify your sources of income? Again, FHA standards require that lenders document job claims.

When you look at the FHASecure program, you can see what the government is really making a trade: You get to dump your old and nasty toxic loan and exchange it for a new and shiny FHA mortgage with sane and sensible terms.

Given current mortgage conditions the FHASecure program is well-intentioned, necessary and smart in a lot of ways. That said, you need to speak with lenders because the program has some quirks and curiosities which will limit the number of borrowers who can use it.

For instance, consider the rules about late and missing payments. It's great that the government will allow borrowers to refinance even though they have a reduced credit standing. The catch is that the government is not the only interested party when it comes to making payments on time and in full. You can pretty much bet that most lenders will be instituting foreclosure proceedings once a loan is several months late.

This means that while the government program is potentially open to a large array of borrowers, many of those borrowers will have already lost their homes unless they move toward FHASecure financing as soon as possible. The lesson here is this: If you're facing vastly higher monthly payments or expect to in the near future, don't wait. Contact lenders NOW about the FHASecure program, especially if you have not missed a payment and your credit is strong.

The need to move quickly applies even if you are already in foreclosure. In some states it can take months to foreclose on a property -- and in others just a few weeks. If you're being foreclosed then immediately -- as in today -- take two steps. First, look into refinancing with FHASecure. Second, make sure you get help from an attorney or legal clinic.

Also, help your situation. If you anticipate larger payments in a few months, then start saving money today. The more time you have with good credit, the more opportunity you'll have to refinance without bad marks on your credit report.

A second issue with the FHASecure program concerns the matter of numbers. The FHA does not have an unlimited capacity to insure mortgages. Simply put, the number of borrowers facing foreclosure is so great that even in the best situation the FHASecure program would not be able to meet the needs of every borrower who wants to refinance. If you need help with your mortgage now -- or if you think you'll need help with your mortgage -- then this is the time to speak with lenders.

The FHASecure program is not going to prevent all foreclosures or even most foreclosures in the next year or two. The good news is that many homes can be saved, so if you have a toxic mortgage then the opportunity to refinance with FHASecure loan should not be ignored or delayed.