FHASecure program expanded

The Federal Housing Administration (FHA) has announced an expansion of its FHASecure loan program, which is designed to help homeowners who can't afford the monthly payments on their existing subprime adjustable-rate mortgage (ARM).

The FHASecure program allows borrowers to use an FHA loan to refinance a subprime ARM if the original lender agrees to reduce the amount the homeowner owes as an alternative to foreclosure. The lender may require a separate loan for repayment of the "gap" between the amount owed and the reduced amount. Homeowners who have used the FHASecure program were able to cut their mortgage payments by $400 a month on average, according to the FHA.

The expanded program is scheduled to take effect in July 2008 and will be open to:

Borrowers who were late on three monthly mortgage payments, either consecutively or three times in the previous 12 months. A loan-to-value (LTV) ratio of 90 percent is required. (The LTV ratio is applied to the refinance and based on a new appraisal prepared by an FHA-approved appraiser.)

Borrowers who were late on only two monthly mortgage payments, either consecutively or twice in the previous 12 months. An LTV ratio of 97 percent is required.

Like all FHA-insured loans, the FHASecure program requires mortgage insurance, which is paid for by the borrower and protects the lender in case the borrower defaults on the loan. The expanded FHASecure program will give borrowers who are more creditworthy a price break on their mortgage insurance.

Homeowners who want to refinance a subprime ARM or other type of loan, but don't meet the FHASecure guidelines may be able to utilize another FHA loan program or obtain a non-FHA loan.

The FHA is a federal government agency within the U.S. Department of Housing and Urban Development. The agency has helped 220,000 borrowers refinance their mortgages since September 2007 and plans to stretch that figure to 500,000 borrowers by the end of 2008.

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