One contributing factor in today's current mortgage crunch and rise in foreclosures has been the exotic loans introduced during our housing boom. The exotic loans allowed more people to buy St. Paul real estate during the boom years because the qualifying guidelines were so lax. There was little or no down payment required, low credit scores for qualifying, and "teaser" rates (really low interest rates that would adjust up at a later time) that made home buyers think they could make the monthly mortgage payments. When the teaser rates went away with the first interest adjustment on the loan, many could no longer afford the mortgage payments.
Prior to the introduction of exotic mortgage programs, FHA (Federal Housing Administration) mortgages had the easiest guidelines for mortgage qualifying. FHA's goal was to encourage home ownership among those who could otherwise not buy a house. FHA only required 3% for a down payment compared to 5% or more on conventional loans. The qualifying credit scores on FHA were lower than conventional. Because FHA had been the easiest type of mortgage to obtain, many first time home buyers purchased with FHA loans. During the housing boom, FHA loans became more and more rare. The conventional sub-prime programs were used by buyers instead.
HUD (Housing and Urban Development) introduced a new FHA program today designed to refinance loans with delinquent payments as a result of the exotic ARM's adjusting too high for the owners to pay. The new FHASecure loan program has the following criteria:
- Good payment history prior to the interest rate adjustment.
- The interest rate "reset" must have occurred between June, 2005, and December, 2009.
- The home owner has at least 3% equity in the property.
- The loan applicant must have had a history of continuous employment.
- The applicant has sufficient income to pay the new mortgage payment.
The new program also will allow delinquent payments to be wrapped into the new loan as long as the owner still has 3% equity in the home. An additional change will be made to the FHA It is hoped that this new program will help to stabilize the real estate market and keep home owners in their homes!