Back to Work Program Lenders Are Approving Loans Now

FHA’s home mortgage loans are ready to be approved through a method that’s easier than ever

The home mortgage process has never been more simple. With Back to Work home mortgage loans, families that have been battling extenuating circumstances may now apply for a new mortgage only 12 months after losing a home.

The housing market crash of 2008 put millions of Americans across the country under the weather. Five years later in August of 2013, the FHA gave these families a second chance.

Mortgagee Letter 2013-26 states, “The FHA is continuing its commitment to fully evaluate borrowers who have experienced periods of financial difficulty due to extenuating circumstances.”

If you have faced foreclosure, short sale, deed-in-lieu, Chapter 7 bankruptcy, Chapter 13 bankruptcy, forbearance agreement or loan modification, the time to apply is now. The program runs through Sept. of 2016.

The letter states, “As a result of the recent recession, many borrowers who experienced unemployment or other severe reductions in income were unable to make their monthly mortgage payments, and ultimately lost their homes.”

Back to Work program lenders are accepting individuals who can prove a loss of employment or income of 20 percent or more for a period of at least six months. If you can provide a W-2 form, a pay stub, an unemployment income receipt or another form of unemployment verification, you may be eligible.

Although you might still be recovering from an economic event, the FHA also requires borrowers to prove satisfactory credit. Borrowers with credit scores below 500 are not accepted into the program, but borrowers with no credit score remain eligible.

A satisfactory credit score proves to lenders that you will be able to repay a mortgage in a timely fashion. If the borrower can show a 12-month credit history that is clear of late housing, installment debt payments, delinquency and other derogatory credit issues, he or she should remain eligible.

Another way the FHA is giving lending agencies peace of mind is through housing counseling. “Back to Work” borrowers are required to participate in at least one hour of one-on-one housing counseling, which is now easier than ever. Families can find participating agencies online at www.hud.gov, and counseling may be completed online, by phone or in person. The agency must be approved by the U.S. Department of Housing and Urban Development.

Counselors ensure that families won’t make the same financial mistakes twice. They teach how to create and assess a household budget, how to avoid scams and how to better prepare for future financial shocks.

The letter states, “Housing counseling is an important resource for both first-time home buyers and repeat home owners.”

If you have faced an economic event, talk to a lending agency that offers the “Back to Work” home loan. These agencies will listen to your situation and keep your best interest throughout the duration of your next mortgage.

The Back to Work Lending Program Changes the Future of Mortgages

What happened in 2008 and what the Back to Work loan program is doing now

When a dramatic rise of mortgage delinquencies and foreclosures began to spark in 2007, the housing market had no path of return after many financial institutions closed their doors by Sept. of 2008. Housing experts note that the crash’s main cause was sub-prime lending; this is referring to loan arrangements with high interest rates for borrowers with poor credit histories.

From 2004 to 2006, sub-prime mortgages rose from 8 percent to 20 percent, according to the University of North Carolina’s Department of Statistics. Over 90 percent of sub-prime mortgages in 2006 were adjustable rate, meaning its rate will change in accordance with the market’s conditions. By 2007, adjustable rates began to reset with higher interest rates, causing higher monthly payments for borrowers. The number of mortgage delinquencies began to soar and global investors became uninterested in purchasing mortgage-related securities.

Borrowers began to dramatically change financial paths, applying for foreclosure, short sale, deed-in-lieu, forbearance agreement, loan modification, Chapter 7 bankruptcy and Chapter 13 bankruptcy. The Federal Housing Administration (FHA) now calls each of these financial situations “economic events,” which happen in result of a loss of employment or income of 20 percent or more for a period of at least six months.

After five years of battle, the FHA developed the “Back to Work - Extenuating Circumstances” program to help recovering families. Traditionally, lending agencies required borrowers to wait several years before applying for a new mortgage loan after an economic event. Through the program, families may apply for a new mortgage only 12 months after losing a home. Borrowers may put down 3.5 percent on a mortgage with no premiums nor fees at closing.

Lenders must be able to verify and document a borrowers’ loss of employment or income through a written document that shows evidence of a termination date or where a prior employer is no longer in business.

Interested borrowers are required to complete housing counseling, which is a one-hour session with an expert approved by the U.S. Department of Housing and Urban Development. Counseling must address the cause of the economic event and may be completed in person, online or by phone.

Mortgagee Letter 2013-26 states, “Housing counseling is an important resource for both first-time home buyers and repeat home owners.”

The Back to Work lending program also requires all borrowers to have a satisfactory credit history for at least 12 months. Credit scores below 500 are not allowed in the program, but borrowers with no credit score remain eligible. Late housing, installment debt payments and delinquency negatively affect a borrower’s eligibility.

Distressed families still looking for a new home mortgage can contact a lending agency that offers the Back to Work loan program. The program runs through Sept. 30, 2016.