FHA Insures Loans for Second-Chance Borrowers

SCHAUMBURG, IL, December 20, 2012

After the housing bubble burst, the nation had a long road to recovery.

Part of the recovery includes home loans backed by the Federal Housing Administration -and some critics are saying that's exactly what got us into the mess in the first place: encouraging relaxed lending standards and backing mortgages to high-risk borrowers.

But others argue it's a necessary step toward economic recovery.

Will the Federal Housing Administration Ask For a Bailout?

As the FHA prepares to submit documents to Congress regarding its financial health, industry watchers speculate that the agency may ask the U.S. Treasury for a bailout.

This speculation is fueling critical arguments against FHA lending practices.

If the FHA insures home loans for borrowers who defaulted on their mortgages not very long ago, and who have gone through home foreclosure and/or bankruptcy, wouldn't this be a problem?

But what these critics fail to mention is that a record of home foreclosure or bankruptcy does not make a homeowner more likely to default in the future.

In other words, this isn't criminal recidivism, which looks at the likelihood of someone with a criminal record committing the same crimes again in the future. Rather, it's because of the economic collapse of 2008, the cause of which has been the subject of considerable debate.

But, for certain, it affected thousands of homeowners from all walks of life.

And not everyone lives the "debt-fueled lifestyle" described in Alejandro Lazo's and Walter Hamilton's report for the Los Angeles Times.

The Function of the FHA

Part of the FHA's function is to help borrowers in financial trouble keep their homes. Its programs range from those which suspend mortgage payments for up to 12 months for homeowners who lost their jobs to programs that help homeowners with "underwater" homes (homes worth less than the balance of the mortgage) apply for refinancing assistance and other types of mortgage assistance that would lower monthly payments.

And according to Housing and Urban Development Secretary Shaun Donovan, home loan borrowers must still "show that they are responsible, that they have worked hard to reestablish their credit."

So, in the end, critics' arguments may have little merit.

Source: FHA gives those who defaulted on homes another chance

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