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Budget Plan Would Reward Subprime FHA Borrowers for Timely Payments.
The unveiling of the president's budget for fiscal year 2004 last week provided a few surprises for Federal Housing Administration lenders - including a new loan product that is designed to reach subprime borrowers and reward them for making monthly mortgage payments on time.
"The budget proposes a new single-family loan guarantee product that extends FHA insurance to borrowers who cannot meet existing underwriting standards due to poor credit ratings," according to the president's budget.
HUD officials declined to provide specifics about the new loan product, except to say it is "under development."
However, budget documents reveal the FHA subprime mortgage would have a higher downpayment requirement than a normal FHA loan and the annual mortgage insurance premium would be 1% - twice the normal premium.
In addition, borrowers would be rewarded with a premium reduction if they make their monthly mortgage payments on time for 24 months.
"The proposal will create new homeownership opportunities for more families with poor credit records who are served at a higher cost in the subprime market or not at all," according to highlights of the Department of Housing and Urban Development's budget.
The HUD budget also revealed that the FHA is preparing to reduce multifamily insurance premiums from 57 basis points to 50 bp starting Oct. 1 - the beginning of FY 2004.
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Source: HighBeam Research, Budget Plan Would Reward Subprime FHA Borrowers for Timely Payments.