The Federal Housing Administration is giving some former home owners another shot at home ownership. The FHA sent a letter to mortgage lenders stating that it would offer mortgage insurance to borrowers who had one of several serious issues with their bank. Things like having filed for chapter 7 bankruptcy with the help if a bankruptcy attorney, or for those who lost their homes through foreclosure with their bank or short sale during the recession.
The reason a bank may be doing this is simple: the economic and homeowner landscape has shifted heavily in recent times. Many banks currently find themselves in a situation where they have homes to sell, and not many people with the capabilities to buy them from them. Of course, providing their clients with financing options is one of the main and basic functions of most banks, and as such they have developed tools and options that will assist would be buyers to become happy homeowners.
Still, potential borrowers must show they can meet all other FHA requirements and that they are no longer financially constrained. Borrowers also will have to undergo housing counseling and FHA is requiring lenders to verify that at least a year has passed since the foreclosure or an economic event” that caused the foreclosure or bankruptcy. In doing so, the potential buyer will prove to their bank that they will be able to fulfill their side of the contract as they’re agreeing to. It is critical no only to understand the terms placed in front of these potential buyers, but that it is proven within reason that they will be able to pay what they are signing into.
As one can imagine, it was precisely these terms that caused a huge snowball effect that effectively left a lot of families without their home in the wake of a huge economic downturn. Not all of the variables can be controlled, but there are many fail safes that can be put in place to try to mitigate or maybe even prevent such a severe incident from reoccurring. Given its numerous factors out of the banks control, a drastic economic decline could become unavoidable. This is well understood, but at the same time the banks looking to get and keep the economy in fluid motion, have put the lessons learned to good use. A healthy economy benefits everyone, while an economy in the ropes negatively impacts everyone. In this, banks and their clients find themselves in the same position. As such, banks have extended an olive branch that will allow them to work together, and get things back up and running once again.
This quote from the FHA sums things up quite nicely. “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,” according to the letter FHA sent to lenders. This level of sincerity is not often seen in big business as you can imagine, which sheds light on how bad things got. Time to pick ourselves back up.
Source: FHA offers mortgage backing to the once bankrupt, HousingWire