HUD and Freddie Enhance Government Foreclosure Program

Some provisions of the government foreclosure program have been modified to help more American homeowners save their homes from foreclosure and to help more renters become homeowners.

Under the new refinancing rules, homeowners whose mortgage loans are guaranteed or owned by Freddie Mac can now refinance their mortgage loans with any of the mortgage lenders accredited by Freddie Mac. Previously, Freddie Mac required borrowers to refinance only with their original lenders.

In addition, borrowers are now being helped in their refinancing costs. Freddie Mac has increased the limits of financing costs, closing costs and escrow charges that mortgage borrowers can add into their refinanced mortgage loans. Borrowers can now include up to 4 percent of the refinanced loan or $5,000 of financing costs, whichever is lesser, into the refinanced loan.

Don Bisenius, vice president of Freddie Mac, said the government-controlled company is always looking for ways to make the government foreclosure program beneficial to more American homeowners.

Meanwhile, the Department of Housing and Urban Development has also expanded the use of the $8,000 first-time buyer tax credit provided under the government foreclosure program. Borrowers who are buying homes for the first time can now use the tax credit to help pay their closing costs as long as they take out loans insured by the Federal Housing Administration.

However, the HUD clarified reports of zero-down payment plans by stating that first-time buyers need to invest 3.5 percent or more of the selling price as their down payment.

The only exceptions to the 3.5 percent minimum down payment rule are FHA mortgage loans obtained by borrowers helped by about ten state housing agencies which have their own state bridge loan programs.

These state agencies offer bridge loans at low interest rates or with no interest and secure these loans as short-term liens on the homes purchased. These short term loans are then converted into second mortgage loans if they remain unpaid for a certain period of time.

Under the government foreclosure program, first-time buyers are defined as borrowers who have not owned a house during the three years before the current home purchase. If buyers are single, their income should not exceed $95,000 and if buyers are married couples, their joint income should not exceed $170,000.

Mortgage lenders will also be restricted on what they can charge if the tax credit money is used in advance to cover the mortgage fees. Lenders are restricted to use only up to 2.5 percent of the borrower’s tax credit. HUD explained that the restrictions are part of efforts to prevent any abuse of the government foreclosure program.

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