Last month in a press release, FHA rolled out details for a fantastic new program to assist potential home owners who were negatively affected by the Great Recession of the last few years. This new FHA guideline will remove the once mandated waiting periods after credit events such as bankruptcies and foreclosures. This new program coined “Back to Work” will allow lenders to now take into consideration extenuating circumstances when evaluating the credit worthiness of potential new homeowners, essentially removing the cut and dry yes or no answers that we have grown accustomed to hearing from mortgage lenders
As a result of the “Great Recession” many Massachusetts residents lost their jobs or were forced to take a reduction in their income to cope with a shrinking economy. This led to many credit issues such as filing for bankruptcy, short-sales, deed-in-lieu, or having their family home foreclosed on. Many residents had made sound financial decisions throughout their lives but because of poor banking regulations and greed were forced into financial difficulty with long term ramifications. FHA’s “Back to Work” program is aimed to help these people. FHA’s goal is to promote home ownership for qualified applicants, but they also realize that a major economic event like a recession and its subsequent collateral damage doesn’t necessarily demonstrate someone’s ability to repay a new mortgage. They realize that it was in fact the recession and not poor financial decisions that led to a negative credit event.
FHA is allowing for the consideration of borrowers who have experienced an Economic Event and can document that:
- certain credit impairments were the result of a Loss of Employment or a significant loss of Household Income beyond the borrower’s control;
- the borrower has demonstrated full recovery from the event; and,
- the borrower has completed housing counseling.
The key to finding out if you are eligible for this program is to understand what FHA considers to be an Economic Event. FHA defines an Economic Event as 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 twenty (20) percent or more for a period of at least six (6) months.
FHA is going to also look at your ability to establish a new satisfactory credit profile. This is done by focusing on the last 12 months of payment history. There would no longer be the long frustrating waiting periods after a bankruptcy, deed-in-lieu, short-sale, or foreclosure. Until now these same applicants would have to wait up to three or four years before being able to realize the dream of home ownership.
This back to work program couldn’t come soon enough. The Massachusetts’s housing market has been on fire and mortgage rates have begun to tick back up to more normalized levels. If you have been sitting on the sidelines because of a previous negative credit event let the Mortgage Buddy see if the FHA Back to Work Program is for you.