The federal mortgage insurer FHA (Federal Housing Authority) is now going to allow holders of subprime mortgages with good payment records and at least 3% in home equity the opportunity to refinance to safe FHA financing.
This shift in policy is supported by the National Association of Realtors, and was put into effect by the U.S. Department of Housing and Urban Development in mid-July of this year. This is one of the first tangible changes to come out of the federal government to help curb mortgage defaults in the subprime market.
Mortgage loan defaults are expected to increase significantly among millions of subprime borrowers in the next two years as the lower starter rates that lending institutions used to lure borrowers expire and their individual rates increase, causing monthly payments to increase to levels where the borrowers are unable to afford their loans.
Unfortunately, only a small portion of the subprime borrowers will qualify for this new FHA assistance. But for those who do qualify, this new policy offers the opportunity for borrowers to move into a fixed, long-term loan that is much safer.
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