FHA Refinancing Will Help Avoid Foreclosures

Implications: It is designed to save an estimated 240,000 homeowners from going into foreclosure.  It benefits creditworthy borrowers who financed their homes by using riskier adjustable rate mortgages which have interest rate reset dates between June 2005 and December 2009.  The program is also expected to create more liquidity in the mortgage market.

Analysis: The program is definitely an excellent program that is likely to help many people.  FHA loan rates are often more attractive than conventional loan rates.  A new risk based mortgage insurance premium pricing structure available starting January 1, 2008 will help  further. 

Property appraisal is likely to be the most difficult hurdle to overcome in using this tool.  Refinancing borrowers will require a minimum of 3% cash or 3% equity in the home to qualify.

Most people who purchased during 2004 will probably be able to use the program effectively.  Some of those who purchased in 2005 may find property appraisals coming in lower than what they owe.