New program launches through FHA and Back to Work program lenders

“Back to Work” program lenders rework the housing market through a new mortgage loan

Families battling a job loss or income reduction of 20 percent or more have found new hope in the Federal Housing Administration (FHA). This past August, FHA launched what was for many, a financial miracle.

The “Back to Work – Extenuating Circumstances” program allows borrowers to apply for a new mortgage loan only one year after losing a home. Previously, this waiting period was three years. In the program, borrowers may put down only 3.5 percent on a mortgage with no premiums or additional closing fees.

The housing market is bound to see progress as many individuals are now able to apply for new mortgage loans – people who were not eligible before. Fewer homes will sit empty with more buyers on the market.

However, not everyone can participate with “Back to Work” program lenders. To be eligible, a family must have faced a significant and unfortunate economic event. An economic event “is any occurrence beyond the borrower’s control that results in loss of employment, loss of income or a combination of both which causes a reduction in the borrower’s household income of 20 percent or more for a period of at least six months,” according to Mortgagee Letter 2013-26.

“Back to Work” program lenders will ask for a written verification of employment to verify the loss of employment. Events like deed-in-lieu, Chapter 7 bankruptcy, Chapter 13 bankruptcy, prior foreclosure, prior short sale, loan modification or forbearance agreements may be applicable. These events take a hit to a borrower’s credit, making it much more difficult to find mortgage lenders who will listen and support a family’s unfortunate event.

Not only must a borrower prove their previous financial hardship, but they also must prove they have been fully recovering for a minimum of one year. This means the borrower must be able to provide proof of employment and be able to make on time, monthly mortgage payments.

The last requirement “Back to Work” program lenders ask of borrowers is completion of one-on-one housing counseling at least 30 days, but no more than six months before submitting a program application. The appointment must be at least one hour and the counselor must be Department of Housing and Urban Development-approved, many of which are online. Participating agencies are listed at www.hud.gov.
 
The session must address the family’s extenuating circumstances and how to keep them from happening again. While working with families looking to apply for a new mortgage loan, counselors usually give advice on foreclosure avoidance, buying a home and how to handle credit issues.

Although the housing market crash of 2008 is still giving families a rough time, the FHA is working to give borrowers a fresh start. Mortgagee Letter 2013-26 reads, “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.”

Ashley Smith has experience in writing on financial lending. He has been writing on various topics such as, home mortgage loans and Back to Work loan program.