FHA Reform: Bush Administration’s aid to the subprime crisis
President Bush will utilize the Federal Housing Administration (FHA) to aid those caught out in the subprime crisis. The FHA was created in the 1930’s to cater to first-time home buyers, minorities and low to moderate income families.
However, he made it clear that "It’s not the government’s job to bail out speculators, or those who made the decision to buy a home they knew they could never afford".
The program called FHA-Secure is not for speculators who went into foreclosure because they cannot flip their property quickly. The FHA program will not cover vacation homes or other homes in which borrowers do not live. It is not a bail out too for lenders who made bad loans.
Aside, from the FHA’s refinancing measure, most of President Bush other proposals is waiting for approval from Congress. This includes an FHA modernization bill that passed the House but stalled in the Senate last year. The bill proposes to lower the down-payment requirements and raise the limit on the size of loans that FHA can insure from $362,000 in states with high home prices to $417,000.
The popularity of adjustable-rate mortgages with subprime borrowers was the major cause of missing out on payments. This type of mortgage starts out with a low introductory rate. Once the high rate kicks in, some borrowers struggle to make payments. The FHA program aims to help some subprime or high-risk borrowers to refinance into loans insured by the FHA. By insuring loans, FHA makes its mortgages more affordable for borrowers and less risky for lenders.
However, it is important to note that the FHA does not make loans. It is a mortgage insurance provider to borrowers through a network of private lenders. It is a requirement for borrowers to have at least 3 percent equity in their homes and be able to verify their incomes. To add, subprime borrowers must be able to demonstrate that they are able to make their payments on time before their loans reset to higher rates and their mortgages reset between June 2005 and December 2009.
The FHA program although a welcome help to a lot of borrowers does nothing for prime borrowers whose loans are about to reset. As Kurt Pfotenhauer, senior vice president for government affairs and public policy at the Mortgage Bankers Association have mentioned, "Right now, the FHA is the only game in town. But that does not solve everyone’s problem in the mortgage industry. A lot of people have lost their homes because they lost their jobs and the value of their home had devalued and they don’t have the income to pay any loan. " In short, they don’t qualify in the criteria set for the FHA-Secure program.
Overall, it is still good to know that the US government is being proactive in easing the growing subprime mortgage crisis. I’m sure that the program, even if it’s not for everyone will alleviate the lives of a lot of struggling families.
News Source: Washington Post.com
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