by Ann Marie Dwyer

Created on: August 12, 2008   Last Updated: September 03, 2008

By combining the powers of Housing and Urban Development (HUD), Federal Housing Authority (FHA) and American Securitization Forum (ASF), America is stepping away from the foreclosure crisis.

~~How does the bubble burst?~~
When economy begins to cool, the Federal Reserve (FED) drops interest rates. Lower interest rates encourage citizens to refinance mortgages. Others take a second mortgage, or take the equity out of homes to spend on taxable goods.

The ASF studied the trends in foreclosures over the last three years through the Home Mortgage Disclosure Act. Foreclosures were started on 1.5 million mortgages in 2007.

ASF points out that of the million foreclosure starts in 2006, more than 40 per cent were on second mortgages or "piggyback loans". These borrowers had little or no equity in their homes and had nothing to lose in foreclosure.

"Vacant houses depress the value of the other homes," says real estate agent, Sheila Hinson. As housing prices drop, the equity in the occupied home drops.

The private banking industry tightened credit requirements for mortgages and halted most nonprime or sub-prime loans. Borrowers, who otherwise secure equity loans, are accepting foreclosure as a choice.

~~Are there better choices than foreclosure?~~
"Reinstatement is the first choice solution," says Melanie Abernathy, loan agent for Founder's Federal Credit Union. Simply pay the back payments and bring the loan current.

FHASecure is an FHA-insured loan available to delinquent and current borrowers with non-FHA adjustable rate mortgages (ARM). According to FHA, "If you are delinquent, the default must have been due to the payment shock of an interest rate reset or, in the case of an Option ARM, the recasting' of the mortgage to fully amortizing."

If the borrower became delinquent because the interest rate adjustment increased the monthly payment, FHA-approved lenders will not automatically disqualify the homeowner.

FHASecure promotes the option of borrowers speaking to HUD-approved housing counselors to discuss options besides foreclosure and bankruptcy. To find counselors, search www.fha.gov/fhasecure or call 1-800-569-4287.

The counselors help borrowers speak with lenders to find solutions, such as refinancing, restructuring and loss-mitigation.

"Deed in lieu" transactions are possible. The borrower surrenders the deed to the lender for total forgiveness of the loan without credit penalty.

Short sale transactions are another choice. The borrower is allowed to sell the home for less

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