FHA Reform Could Mean Good News for Bad Credit Borrowers

By Gabriel Traverso
Mortgage Credit Problems Columnist

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With defaults and foreclosures on the rise it's becoming clear that many homeowners are in worsening shape over their home loans. In the past a mortgage refinance would have spelled relief, but with home values rising more slowly this isn't an option for everyone.

The Future of Your Bad Credit Mortgage

Recently the National Association of Realtors® appeared before Congress with the goal of enacting Federal Housing Authority (FHA) reform. NAR recognizes the fact that many homeowners are not in a good position with their mortgages, especially those with poor or bad credit, and argued that the solution lies in changes to the FHA program. For years the FHA has been an excellent program for low-income and bad credit borrowers--providing they met certain criteria. Because the Federal Housing Authority insures the loan, lenders are often willing to extend credit to those that might otherwise get turned away. NAR's reform proposals could spell relief to those in need of a mortgage refinance.

New Refinance Options Proposed

A few of the changes NAR suggested were eliminating the 3% down payment requirement, raising loan limits, and providing risk-based pricing. Said NAR spokesperson Iona Harrison, "The FHA program makes it possible for higher risk, yet credit-worthy, borrowers to get prime financing." However, one of the best suggestions from NAR proposed that the FHA waive its requirement that a homeowner be current on their mortgage in order to refinance to an FHA loan. According to NAR President Pat Combs, this could help many "to skirt foreclosure and keep their homes."

A Brighter Outlook for Bad Credit Borrowers

This news spells a positive outlook for homeowners with bad credit who need to refinance their way out of trouble. Much of the press recently has been negative: homeowners bought homes they couldn't afford and lenders got too greedy. Whatever the cause may be, it's clear that the NAR is trying to come up with solutions. If you want to get involved contact your Congressman and ask them to support the proposed FHA reforms. It could help more than you think.

NAR: FHA Must Be Reformed to be Viable Mortgage Alternative: NAR to Congress

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