FHA Program May Provide Opportunities for Disqualified Borrowers

There is now hope for some buyers who were previously prevented from getting a loan to buy a home after a foreclosure or other distressed property transaction. 
In a November 25 lunch and learn program hosted by NVAR and Asian-American Homeownership Counseling, Inc. (AAHC) in Fairfax,  AAHC’s Song Hutchins explained to NVAR members the new FHA “Back to Work” loan program. Representatives from event-sponsor Wells Fargo Home Mortgage also discussed their Community Development and Neighborhood Community Development Mortgage Programs. All of these programs may remove barriers to homeownership opportunities for low- to moderate-income buyers with credit and/or down payments concerns.  

BACK TO WORK
As part of its ongoing effort to expand access to mortgage credit for families impacted by the recent financial crisis, the FHA provides guidance in an August 15, 2013 Mortgagee Letter. The Letter offers guidelines for evaluating borrowers who, but for economic circumstances brought on by the crisis, would be creditworthy.

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 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 FHA is allowing for the consideration of borrowers who have experienced an Economic Event, which 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. 

Eligible borrowers must also document the following:
• that certain credit impairments were the result of a Loss of Employment or a significant loss of Household Income beyond the borrower’s control;
• that they have demonstrated full recovery from the event; and,
• that they have completed housing counseling.

The Letter states that housing counseling is an important resource for both first-time buyers and repeat homeowners:

To help borrowers better understand their loan options and obligations, assist with household budgeting, access reliable information and resources and prepare for possible future financial setbacks, FHA requires that they complete pre-purchase counseling by HUD approved housing counseling agency. 

AAHC is a HUD-approved local housing counseling agency, with services in DC, MD and VA. Pre-purchase counseling is offered on a one-on-one basis at its main office in Rockville and by appointment at NVAR Fairfax. AAHC also offers a monthly First Time Homebuyer Education Class at NVAR’s Fairfax headquarters. For more information, email Counseling@aa-hc.org or call at 301.760.7636 or 703.291.6324, and ask for "Back to Work” program counseling.  AAHC has counselors who speak Chinese-Mandarin, English, Korean and Vietnamese. Visit the AAHC website at aa-hc.org.

A list of other approved agencies can be obtained online at hud.gov or by calling 1.800.569.4287.
To read the complete Mortgagee Letter, visit go.nvar.com/BackToWork. 

Housing Counseling: Required Documentation          

The lender must verify and document that: 
• the borrower has completed the required pre-purchase housing counseling by obtaining a letter from the borrower issued by the Participating Housing Counseling Agency on agency letterhead and that includes the agency’s Tax Identification Number. The letter must state: the borrower’s name, the counselor’s name, that counseling was delivered in accordance with ML 2013-26 requirements, the date upon which counseling was completed, borrower’s signature and the signature of an authorized official of the counseling agency providing the counseling, and 
• the borrower received the proper disclosures … from the housing counseling agency. 

Song Hutchins is the CEO and founder of Asian-American Homeownership Counseling, Inc. She has worked in housing, mortgage and finance industries for more than 20 years.
Susan Mekenney, former NVAR Chairman, is on the Board of Directors of AAHC. She is an associate broker with RE/MAX Allegiance in Alexandria.