FHA Mortgage News

To further boost the slowly recovering housing market, the Federal Housing Administration (FHA) announced on Monday, August 19, 2013, that it will reduce the time that homebuyers will have to wait after experiencing a bankruptcy, foreclosure, or short sale or deed-in-lieu before qualifying for an FHA-backed home mortgage loan.  Up until this time a potential homebuyer had to wait two years following a bankruptcy and three years after a foreclosure or short sale.  This waiting time has now been reduced to a one year waiting period which will allow potential homebuyers who suffered economic hardship to reenter the market in as little as twelve months.

FHA Commissioner Carol Galante said in a letter on Monday that the “FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage.”  Borrowers who had to experience a recession-related financial event must be able to prove that they have recovered and are on their way to gaining financial stability once again.

This new reduced waiting time period doesn’t mean that borrowers will qualify automatically for an FHA-backed loan. Instead, they will have to show that they experienced an “economic event” that reduced their household income by 20% or more for at least six months, prove that they have fully recovered from the event, and they must agree to housing counseling prior to their closing.  To be eligible for a more lenient approval procedure, the potential homebuyer will need to furnish documents that indicate “certain credit impairments” came from loss of employment or loss of income that was beyond their control.

Also according to the letter released by the FHA, the potential homebuyer must show recovery from an economic event and demonstrate that the he has reestablished “satisfactory credit” for at least twelve months.  The criterion for satisfactory credit includes twelve months of good payment history on payments toward a mortgage, rent, or credit accounts.

This new program, known as the “Back to Work-Extenuating Circumstances” initiative is for case numbers that were assigned on or after August 15, 2013, and is effective through September 30, 2016.

These new guidelines indicate the innovative thinking by FHA officials who recognize that economic hardships beyond the control of borrowers don’t reflect their true ability to repay their debts.  This cut in the period that potential homebuyers have to wait after experiencing economic loss and recovery is sure to help stimulate the housing economy and move many more buyers into our sluggish market. 

Sources: Mortgage Professional America (www.mpamag.com)
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