FHA Act Proposed to Help Borrowers Retain Homes

House Financial Services Committee Chairman Barney Frank proposed a plan on March 13, 2008 to give the Federal Housing Administration (FHA) $150-$300 billion over each of the next two years to provide guarantees to help refinance at-risk mortgages.

There are numerous requirements borrowers must meet to qualify for one of these loans - essentially borrowers should have the same qualifications listed under FHA law for a traditional short-refinance, and refinancing under this plan should result in lower payments.

Under the terms of the plan, the existing lender would receive no more than 85% of the house price as compensation for turning over the lien. Second lienholders would likely be cut out entirely. The proposal states that it will take action as necessary to ensure cooperation from lienholders, but does not have details on what those actions might be.