Second Chance for Foreclosed Homeowners

Potential homeowners who fell on hard times during the recession are being offered a lifeline back into the housing market, via the Federal Housing Administration.According to a letter sent to mortgage lenders, the FHA said it would offer mortgage insurance to borrowers who, during the recession, filed for bankruptcy or lost their homes through a foreclosure or short-sale proceeding.The insurance is now available to those who can prove they are no longer financially compromised — and met all other FHA requirements."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," the letter says.Besides the burden of proof on the borrower to demonstrate a recovery from the "economic event," the potential homeowner must also complete housing counseling. This event would need to result in a minimum loss of 20% of the household income.The FHA is requiring lenders to verify at least a year has passed since the foreclosure and the economic event is responsible for the loss of the home or bankruptcy.