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Sunday, November 10, 2013

Is the new FHA program good or bad?

Income verification is an important aspect of FHA rules
Job loss related mortgage default penalty has been reduced to one year
By Jeffry Evans

There is currently a new push by the Obama administration to help get people back into homes and an extra push to help get the real estate market back on it's feet after the historic crash back in 2007. While some are excited about these changes that are soon to be coming down the pipe, others are a little bit more weary, to say the least. But could this new FHA program help get us back on our feet, or could we be repeating our mistakes all over again?

What caused the crash?

For the most part, the housing market crashed because lenders were a bit too lax when it came to credit regulations and making sure homeowners could afford the homes for which they were being approved. In 2007, foreclosures went through the roof, lenders took a huge hit on these defaulted loans, and it was felt all over the United States. Then, once banks starting feeling the hit, they started tightening up on their restrictions and made it much more difficult to get a mortgage loan. We've seen mortgage loan rates start creeping back up, home values starting to rise, and people getting more comfortable with the housing market to start looking at buying a home. So how is our government trying to help?

How the government is trying to help

Normally, once a home owners  default on home loans either through foreclosure, bankruptcy or a short sale on their home, there is a kind of penalty time put on their credit before they can go back out and get another mortgage. That waiting period has been 3 years in the past. The new FHA regulations that the Obama administration has recently put forth shortens that waiting period to 1 year. This one year only applies if you can prove that the foreclosure was due to a job loss or reduction in your hours at work that was beyond your control, as well as doing the necessary work to repair your credit as well.

Will this help or hurt us?

As previously mentioned, one of the main reasons we found ourselves in a housing crisis in 2007 was due to lessening our standards and policies in the name of getting more loans passed through the system. Could we be making the same mistakes all over again by doing the same thing? FHA experts say no. Gone are the times when you could do a “no doc” loan, basically stating your income without the means to back it up with paperwork. 

FHA regulations would still require you to prove your income and ability to pay on a home mortgage. Plus, while the federal government can lessen these standards, they cannot force lending institutions to lend money. Thus, many banks are going to be very cautious when lending money to someone who has had a foreclosure or other adverse event in the past year.

While many experts are optimistic about what these changes can mean to repairing a down housing market, others admit that it's a bold move and one that needs to be carefully monitored to ensure we don't find ourselves back in the same place we did in 2007.

About the author: Jeffry Evans brings you the top resources to get your real estate license. If you're looking to become a real estate agent check out my site http://realestatelicense.org to see the requirements and resources your state has.
Citation: Timiraos, Nick, “New Lifeline for Home Buyers”. The Wall Street Journal. 2 September 2013.                             Image license: Steven Depolo, CC BY 2.0