In an effort to boost the economy and the housing recovery the HUD announced this week the creation of the FHA Back to Work Extenuation Circumstances program. By recognizing that the credit situation that many consumers currently find themselves in, may have more to do with the irresponsible and possibly illegal actions of others than with poor financial decisions by the consumers themselves, FHA seeks to give a reprieve from the current waiting period that exempts borrowers from qualifying for FHA-backed mortgages for a certain number of years after a bankruptcy, foreclosure, short sale, or deed-in-lieu foreclosure. The letter released by the U.S. Department of Housing and Urban Development (HUD) on August 15th states, “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.”
Borrowers who can…
- Provide evidence that an “Economic Event”, “beyond the borrower’s control”, such as a job loss or other serious reduction in pay, impaired the borrower’s credit.
- Demonstrate full recovery from the event.
- Complete an hour-long, one-on-one counseling session with the goal of addressing the cause of the Economic Event and the actions taken to overcome and reduce the likelihood of reoccurrence.
…will be granted exemption from FHA’s waiting period for bankruptcies, foreclosures, deeds-in-lieu, and short sales. This period previously lasted up to two years for bankruptcies and up to three years for foreclosures, short sales, and deed-in-lieu of foreclosures.
One of the key phrases is “beyond the borrower’s control.” This demonstrates a willingness to acknowledge that after a serious economic crisis, a consumer’s credit can be severely affected by forces beyond their control and that credit scores should not be the only benchmark used to determine the ability to repay debt. Responsible borrowers can easily find themselves the unwilling victims of the negligent or irresponsible actions of the general public.
It’s too early to tell if the required hoops will be too difficult to jump through and since this Letter released by HUD only loosely defines the qualifications, we will have to wait and see what the net result of the program will be.
Hopefully programs like these will help give a boost to the housing market and the economy, allowing hard-working and responsible consumers to get back in to the housing market and to start rebuilding their credit much quicker. “We have to applaud HUD for reducing the time to get back into the market for the people hit the hardest. An event beyond your control that forces you into another event like foreclosure is a double blow and these people should be allowed to be homeowners again. Although this will not help everyone it is a step in the right direction,” says Sean Safholm, Regional Vice President with Land/Home Financial Services, Inc.
To learn more about the specifics of this program or to help better determine your eligibility we strongly encourage you to speak with a Loan Specialist at a Mortgage Lender or Mortgage Broker. They will be able to provide you with the knowledge and support to help you decide if the program is right for you and to guide you through the process of completing the application.
Mary Pizzimenti, California Realtor ®