Just recently, the Department of Housing and Urban Development on Thursday created a new set of guidelines under the FHA program specifically geared toward homeowners and prospective homeowners affected by the recent recession. The program is called the “Back to Work” program.
The FHA stated, “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 a pre-foreclosure sale, deed-in-lieu, or foreclosure. Some borrowers were forced to file for bankruptcy to discharge or restructure their debts. Because of these recent recession-related periods of financial difficulty, borrowers’ credit has been negatively affected. FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage."
The Back to Work program will require prospective borrowers to document the nature of the economic event that resulted in their derogatory credit. They will also have to prove that there has been a recovery from said event. For the purposes of this program, an “economic event” is defined 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. The ‘Onset of an Economic Event’ is the month of loss of employment/income."
Lenders will consider the event to have caused the derogatory credit if:
- The prospective borrowers had satisfactory credit prior to the event onset;
- The prospective borrowers' derogatory credit occurred after the onset of the event;
- The prospective borrowers have reestablished satisfactory credit for at least 12 months since the end of the event.
Lenders will consider borrowers to have reestablished satisfactory credit if:
- The borrower has no late housing or installment debt payments for the past 12 months;
- Open mortgage accounts are current and have been paid on time for the past 12 months;
- Borrowers have adhered to the agreement of any open modification plan for the past 12 months;
- Borrowers complete a course of Housing Counseling in person, via telephone, via internet or other methods approved by HUD (who provides a list of counseling agencies).
If you believe you could benefit from the “Back to Work” program, you can apply for an FHA Back to Work mortgage with any FHA-approved lender. The mortgage approval process is the same for any other FHA-insured mortgage.