FHA mortgages have a few key advantages over conventional mortgages. First among those advantages is the ability to “streamline” an FHA loan. An FHA streamline refinance is basically an low-hassle, low-cost interest rate reduction refinance from one FHA loan to another. In times like these streamlines are especially useful because the borrower does not need to prove income levels or show that the home is still worth more than the loan to get a streamline refinance. So people with FHA loans who have experienced a reduction in in come or who owe more than the home is now worth due to property values dropping can easily refi. However, there are two things that will scuttle a borrower’s ability to get an FHA refi: 1) A 30+ day late mortgage payment in the last 12 months, and 2) a credit score below 620.
HUD says that about 15% of FHA loan holders do indeed have a late payment in the last year so this week the administration announced a loan modification plan for these FHA loan holders who can’t streamline their loans. Here is an excerpt from a recent Seattle PI article on this topic:
U.S. Housing and Urban Development Secretary Shaun Donovan announced Thursday that the Federal Housing Administration was bringing its mortgage modification program in line with the administration’s Making Home Affordable program, creating a new FHA-Home Affordable Modification Program. The agency has released a mortgagee letter and guidelines, and expects all servicers to implement the changes by Aug. 15.
“Today, we’re bringing another important tool to the table to help struggling families who are desperate to keep their homes,” Donovan said in a news release. “Tens of thousands of FHA borrowers will now be able to modify their mortgages in the same manner as so many others who are taking advantage of the administration’s Making Home Affordable program.”