FHA: A Cool-In After A Subprime Mortgage Meltdown

FHA has emerged as the home loan solution of choice after the implosion of a once ballooning sub-prime housing market. Ending with it, in one failed gasp, was the life span of a multitude of mortgage lenders who had almost exclusively sold sub-prime's troubled Adjustable Rate Mortgages (ARMs) and "No Documentation" type loans.

The FHA Gov't Loan Program is no sub-prime, but its common sense approach to home lending promises to help millions of homeowners that due to the tightening of the credit markets, find themselves unable to refinance out of their temporarily fixed-rate sub-prime loan because of less than perfect credit or very little equity.

FHA is a saving grace of sort for homeowners that otherwise cannot qualify for a new fixed mortgage because of stricter credit requirements or low home values. The demise of sub-prime shifted home lending conventions toward traditional "good credit" and "good equity" guidelines. Better credit profile borrowers continued to see the availability of loan programs while the sub-prime borrower witnessed a sobering elimination of better suited and alternate loan programs.

FHA may be as significant in scope today as it was when it was first created in 1934 to remedy housing concerns after The Great Depression. Unlike 75 years ago, this housing crisis is arguably a result of lending practices rather than an uncontrollable economic downturn.

Today's homeowner contends with the stronghold of the Adjustable Rate Mortgage (ARM), the staple product of the gone by the wayside sub-prime movement. ARMs were difficult to resist and easy to sell because of introductory "teaser" type interest rates and low interest only payments that in many instances cured only a fraction of the interest due for the monthly payment. The magnitude of the potential consequence that came with these dangerous loans was a short afterthought for the borrowers and lenders alike.

Adjustable rate mortgages now weigh in heavily on the bottomless free fall of home values across the country due to its ties to foreclosure. Homeowners are unable to stay current on their mortgage payments after the rate increases on their ARMs. In contrast, an FHA Gov't loan is a low-interest 30-year fixed rate loan backed by the strength and credit of the U.S. Government. FHA interest rates can range as low as 4.5%.

So far, FHA does not have a foreclosure program, but it is very promising in curtailing the already exorbitant rate of foreclosure by giving income-qualifying homeowners a realistic grip before foreclosure occurs. In the widespread turbulent waters of America's housing market many homeowners can use the assistance of a life-wrath, if help is to be rendered in time.