FHA Secure

The new FHA Secure loan program is a new refinance option that is being offered through the Fair Housing Administration to homeowners who have fallen behind on their mortgage payments due to increasing interest rates and payments on their adjustable rate mortgages (ARMs).

Many homeowners are finding the new increased mortgage payments difficult or impossible to pay every month and many homeowners are now sliding toward foreclosure. The FHA Secure loan program is designed to help homeowners who took out sub prime adjustable rate mortgages and other borrowers facing foreclosure due to an adjustable rate mortgage

The FHA Secure program has expanded to include the following:

Borrowers delinquent on their non-FHA ARMs due to a rate reset or an extenuating circumstance, but experienced no more than two 30-day or one 60-day late payments in the 12 months prior to the rate reset or extenuating circumstance that caused the delinquency
Borrowers delinquent on their non-FHA ARMs due to a rate reset or an extenuating circumstance, but experienced no more than one 90-day or no more than three 30-day late payments prior to the rate reset or extenuating circumstance the caused the delinquency provided the Loan-to-Value on the FHA insured first mortgage does not exceed 90 percent.
Borrowers delinquent on their Interest-Only and/or Payment Option ARMS are NOT eligible for this expansion. Borrowers with these types of loans must demonstrate that a rate reset caused the delinquency and that they were making the monthly mortgage payments within the month due during the 6 months prior to the rate reset.

The FHA Secure program would allow these homeowners to refinance their adjustable rate mortgage into a more stable fixed rate mortgage and include up to 6 months past due mortgage payments into the loan balance. The homeowner must prove that the payment increase from their adjustable rate mortgage was the cause of their delinquent mortgage payment, not lack of financial responsibility.

FHA will also permit back taxes and insurance to be included into the new loan amount.

All conventional-to-FHA rate and term refinances are considered FHA Secure, regardless of whether the borrower is delinquent or current.

Eligibility Criteria:

To qualify for FHA Secure, eligible homeowners must meet the following criteria:

A history of on-time mortgage payments before the borrower's teaser rates expired and loans reset
You must presently have an adjustable rate mortgage whose interest rate reset or is scheduled to reset not later than December of 2009
Your property must be owner occupied. This means you must physically live at the property full time, as your permanent residence. Second homes or investment properties are not eligible.
Should have at least 3% in property equity or 3% in cash reserves
A sustained history of employment
Sufficient income to make the mortgage payment
Cash-out refinance transactions are not acceptable under this initiative

Subordinate Financing:

If the new maximum FHA loan is not enough to pay off the existing first lien, closing costs and arrearages, the lender may execute a second lien at closing to pay the difference. The new subordinate lien does not have to be supported by the value of the property. The combined amount of the FHA Secure first mortgage and any subordinate non-FHA insured lien may exceed the applicable FHA loan-to-value ratio and geographical maximum mortgage amount, in other words, Combined Loan-to-Value is unlimited on new and/or re-subordination

The terms of the subordinate financing must not trigger a default on the FHA-insured first mortgage, therefore FHA has establish the following conditions:

The terms of the subordinate lien(s) must NOT provide for a balloon payment before ten years, unless the property is sold or refinanced
The terms must permit prepayment by the borrower, without penalty, after giving a 30 day advance notice
The required monthly payments under both the new FHA-insured mortgage and the subordinate lien(s)-- regardless of when payments begin-- plus other housing expenses and all recurring charges, cannot exceed the borrower’s reasonable ability to pay