Back to Work Lending Program: Changing Dreams into Reality

As per data from Realty Trac, a foreclosure listing company, more than 4 million foreclosures were completed between January 2007 and December 2011. Towards the end of December 2011, More than double these numbers of foreclosures were in the process; approximately 8.2 million!

The housing market crash affected millions of families, forcing them to let go of their nest eggs, the homes they owned. The struggling economy is still on its way to recovery. People who have lost their homes due to a financial crisis try their best to face the situation. They are committed to paying off their debts, committed to improving their credit scores and are now re-entering the market in a much stronger position.

FHA’s back to work lending program has raised the hopes of affected families. The program, launched on August 15th of 2013, is aimed at helping creditworthy Americans who are now re-employed and wish to re-build their home.

Under this program, borrowers who have been through extenuating economic hardships can re-enter the market just a year after losing their home and obtain an FHA mortgage. Earlier, borrowers had to wait for at least three years before they could apply for a government loan. The back to work lending program has been welcomed by borrowers across America, who have found a new hope for their dream home.

However, there are certain strings attached to this opportunity! Not all borrowers can take part in the program. Let us talk about what qualifies one to benefit from this program.

Borrowers must prove their difficult economic circumstances such as a bankruptcy, short sale, deed-in-lieu or loss of employment, for at least 12 months. They must submit documented proof of their financial hardship. Also, they must show that there has been a 20% reduction in their household income, at least 6 months before they defaulted on the loan.

Further, their credit scores must be good for at least 12 months after the financial event they have been through. A minimum score of 500 is a must, however, those with no credit score can also qualify.

Last but not least, the borrowers are required to take a 1-hour counseling session from a Housing and Urban Developing (HUD) agency at least 30 days prior to filing a new loan application. This may be done over the phone, in person, or online. This counseling helps borrowers understand issues such as loan options and obligations, budgeting, and how to avoid scams; among other things.

With the back to work loan program, many individuals are now able to enter the housing market again by applying for new mortgage loans. The market is definitely seeing a greater number of buyers, with fewer homes lying vacant.

What the affected borrowers need is a helping hand that can lead them to their dream. Choosing the appropriate lender can determine how smooth the process of re-entering the market can be.

The tricky documentation work, choosing an appropriate loan amount and weighing the loan obligations can be daunting subjects for borrowers. Borrowers must work with an experienced lender who can make the complete process much simpler and faster.

Clarifying New Back to Work Lending

An explanation of the “Back to Work” loan’s confusing terms

On August 15th of last year, the Federal Housing Administration relaxed its guidelines for borrowers who have “experienced periods of financial difficulty due to extenuating circumstances,” according to Mortgagee Letter 2013-26.

The terminology throughout the mortgagee letter isn’t written for regular folks. Many of the terms used to describe the Back to Work - Extenuating Circumstances program could cause interested families to shy away. However, the program isn’t as complicated as it may seem.

The FHA is considering those who can document an economic event, which the administration defines as “any occurrence beyond the borrowers control that results in loss of employment, loss of income, or a combination of both, which causes a reduction in the borrower’s household income of 20 percent or more for a period of at least six months.”

In other words, an economic event can be foreclosure, short sale, deed-in-lieu, loan modification, forbearance agreement, Chapter 7 bankruptcy or Chapter 13 bankruptcy. If you can provide documents that show when and where employment was lost, you should be eligible.

Throughout the letter, the term “borrower” includes both the main borrower as well as the co-borrower. Anyone who signs a mortgage is considered a borrower. A “household member” is a person who lived at the borrower’s residence during the economic event and was a co-borrower on the previous mortgage.

The “onset of an economic event” is the date in which the event occurred. This date also starts a family’s waiting period, the length of which is decided by the FHA lending agency. New “Back to Work” lending allows families to apply for a new mortgage only twelve months after losing a home. Normally, the waiting period after foreclosure and short sale is three years, and two years after bankruptcy.

Recovering from a significant reduction in credit from an economic event can take up to seven years. Through “Back to Work,” recovering families have a second chance to refinance. However, credit scores below 500 are not eligible for the program.

To be eligible for a Back to Work loan program, you must have a 12-month credit history that is clear of late housing, installment debt payments, delinquency and other derogatory credit issues. The letter defines this as “satisfactory credit,” meaning you are a good risk to lenders if the guidelines are met.

Borrowers are also required to attend “housing counseling,” which is a one-hour session with a U.S. Department of Housing and Urban Development approved agency. Counselors help borrowers create a household budget and teach them how to avoid making the same financial mistakes twice. The cause of the economic event must be addressed during counseling.

Recovering from an economic event is a long-term process, but the “Back to Work” program is available to help the millions of Americans who are facing financial hardship. Don’t let the mortgagee letter’s confusing terminology turn you away. Speak with a mortgage and lending expert in person or online for more information.

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.

The Back to Work Lending Program Supports New Homebuyers

The two most beneficial tips for recovered home-buyers back in the market

The Back to Work loan program has made it possible to apply for a new mortgage only 12 months after an economic event. After a situation like bankruptcy or foreclosure, it can be frightening to begin the move from an apartment or another shelter, to a house that you can call your own. Here are two often-forgotten ideas that will make your transition smoother.

1. What is your budget?

This may seem like a silly question, but many families don’t know what they can afford. It is easy to overestimate what is affordable when each living cost is yet to be pieced together.

Earnest money is the deposit made on a home after a family submits an offer. This proves to the seller that you are serious about buying the house. A down payment is an initial and partial payment made at the time of settlement. The Back to Work lending program allows borrowers to put down only 3.5 percent on a new mortgage.

As soon as you move in, there will be other factors to consider as well, like heating and cooling, water and electricity. Don’t forget other living expenses, such as food, internet, cable, car insurance, fuel and cell phones.

To avoid making the same mistakes twice, families should have a back-up plan for handling the loss of employment or income. If the main provider lost his or her job, would the family be able to continue paying the mortgage? Does the family have a sufficient savings plan?

Calculating these numbers can become complicated and stressful, which is why most families avoid budgets. However, it becomes much easier when families keep track in an Excel file or other documenting program. “Back to Work” lending program participants are required to complete at least one hour of housing counseling, in which the counselor can help create or assess a household budget.

2. Create a “wants” and “needs” list.

Although a fireplace, a finished basement or backyard pool sound great. Extra wish-list items only make homes more costly, especially when there are other financial factors to consider. Your family’s needs should be your first priority.

Location is key. Consider how close your desired location is to your job, your children’s school and the supermarket. Look into whether public transportation is an option and if the garage will fit your family’s vehicle. Some neighborhoods have strict rules about parking on the street, fencing and sheds.

Townhouses, condominiums and duplexes will each have different ways of landscaping and disposing of garbage. Creating a list of what will be truly beneficial to your family will narrow your choices down to the perfect home that will make the “Back to Work” loan program a successful one.

FHA Launches Back to Work Program

Mortgage lenders work with housing market crash victims

The 2008 housing market crash created millions of foreclosed homes alongside millions of families in negative financial situations.

The Federal Housing Administration (FHA) released Mortgagee Letter 2013-26 on August 15 of last year, which 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 to pre-foreclosure sale, deed-in-lieu or foreclosure. Some borrowers were forced to file for bankruptcy to discharge or restructure their debts.”



The letter brought forth FHA’s “Back to Work - Extenuating Circumstances program,” which allows families facing an unfortunate economic event to apply for a new mortgage only twelve months after losing a home.

The program waives lending agencies’ traditional three-year waiting period after foreclosure, short sale and deed-in-lieu, and bankruptcy’s traditional two-year waiting period. Borrowers may put down only 3.5 percent with no premiums nor additional fees at closing. Mortgage rates are the same as other FHA rates.

To be eligible, borrowers must be fully recovering from their economic event. “An economic event is any occurrence beyond the borrower’s control that results in loss of employment, loss of income or a combination of both, which causes a reduction in the borrower’s household income of 20 percent or more for a period of at least six months,” Mortgagee Letter 2013-26 states.

To prove a full recovery, borrowers must show at least twelve months of credit history that is clear of late housing, installment debt payments, derogatory credit issues and delinquency. Credit scores below 500 are not allowed, but borrowers with no credit score remain eligible.

Back to Work program lenders must be able to verify and document a loss of employment by receiving written verification of employment that shows evidence of a termination date or where the borrower’s prior employer is no longer in business.

Borrowers facing Chapter 13 bankruptcy who have yet to be discharged must gain written permission from the Bankruptcy Court to begin a new mortgage. Such document is to be given to their lending agency.

Another way FHA is working with “Back to Work” borrowers is by requiring one hour of housing counseling. The counselor must be approved by the U.S. Department of Housing and Urban Development and address the cause of the economic event.

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