August 3, 2015
A reader got in touch with us recently about the FHA’s Back To Work program, which was announced in 2013 as a way for lenders to offer FHA mortgage loans to people who have had financial hardship in the past that might otherwise disqualify them from a home loan.
Back To Work requires the borrower and lender to work together to document the causes of a pre-foreclosure sale, foreclosure, bankruptcy or other financial hardship to show that the issue was circumstantial and not representative of a borrower’s actual credit worthiness.
The following guidance to lenders is from FHA Mortgagee Letter 13-26:
“As a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income, were unable to make their monthly mortgage payments, and ultimately lost their homes to a preforeclosure sale, deed-in-lieu, or foreclosure. Some borrowers were forced to file for bankruptcy to discharge or restructure their debts. Because of these recent recession-related periods of financial difficulty, borrowers credit has been negatively affected. 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.”
Back To Work allows participating lenders willing to do so to consider FHA loan applicants, “who haveexperienced an Economic Event and can document that:
–certain credit impairments were the result of a Loss of Employment or a significant loss of Household Income beyond the borrowers control;
–the borrower has demonstrated full recovery from the event; and,
–the borrower has completed housing counseling.”
The reader’s question related to Back To Work is whether the FHA program is available for reverse mortgages. Can, the reader asks, the FHA Back To Work Program be used for an FHA HECM loan application?
The short answer is no. The same mortgagee letter that announced Back To Work in 2013 also says, “The guidance in this ML is applicable to purchase money mortgages in all FHA programs with the exception of Home Equity Conversion Mortgages”.
Back To Work, as it is currently operating, is due to expire in September 2016.
Do you have questions about FHA home loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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