FHA saddles up to help delinquent borrowers
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Some critics wondered publicly whether the FHA should be humanely destroyed. But then came this year's subprime meltdown. Most subprime borrowers have adjustable-rate mortgages, and at the end of June, one in six subprime ARM borrowers was at least a month past due on the payments, according to the Mortgage Bankers Association. About two in 25 subprime ARMs were in foreclosure. The delinquency and foreclosure rates were rising.

In light of the subprime delinquency and foreclosure epidemic, the FHA believes it is relevant again. Federal housing officials intend to saddle up FHA and make it carry a bigger load. FHASecure constitutes the first of those efforts. It's intended to help ARM borrowers who can't make their payments after rate reset and who have trouble finding conventional lenders that are willing to lend at affordable rates.

"FHASecure is designed for families who are good borrowers but were steered into high-cost loans with teaser rates," FHA commissioner Brian Montgomery says.

It's hard to estimate the size of that market. The Center for Responsible Lending estimates that 2.2 million subprime loans will go into foreclosure over the next several years. Christopher Cagan, director of research and analytics for First American CoreLogic, has estimated that 1.1 million foreclosures will result from rate resets through the end of 2012, affecting both prime and subprime borrowers.

The FHA estimates that it can help 60,000 ARM borrowers refinance in the next fiscal year. FHA officials say the agency isn't going to solve the foreclosure problem all by itself, and that's not the intent.

Who qualifies for assistance?
According to FHA guidelines that were sent last week to lenders, the FHASecure refinance program is available only to borrowers who made all their payments on time during the six months before the ARM rate was adjusted upward. (In practice, "on time" means less than 30 days late, so making a few payments two weeks late won't disqualify borrowers.)

Borrowers can get FHASecure loans even if they are up to six months behind on the payments on their non-FHA ARMs. But borrowers have to prove that they fell behind because of the rate reset and not for another reason, such as a job layoff.

"The FHASecure initiative ... is not to be used to solicit homeowners to cease making timely mortgage payments," the agency admonishes in its letter to lenders. So don't let anyone talk you into making late payments on purpose.

Borrowers can roll the unpaid payments into the new loan.

FHA-insured loans have maximum amounts that vary depending on how expensive a housing market is. In the continental United States, the loan limit tops out at $362,790 for a single-family house in the priciest markets. That would be the limit in, say, Los Angeles. In a less expensive market -- Toledo, Ohio, for example -- the limit is $200,160. The FHA's Web site has a loan limit guide. If they need more than the FHA maximum, borrowers will be permitted to get uninsured piggyback loans for the difference -- if the FHA determines that they can afford the combined monthly payments. Total house payments can't exceed 31 percent of monthly income before income taxes.