One of the more challenging aspects about working in the mortgage business these days is the inability to help everyone that deserves it. Today's mortgage market is very unforgiving to those who have stumbled on hard times. One of the questions I am asked by my clients most often is can I refinance my home with bad credit?

Early 2000 through last year millions of people with poor credit took out two and three year adjustable rate mortgages. These loans were used to either refinance or buy their homes. These 2/28's or 3/27's, as they were called, were much easier to qualify for than conventional FHA mortgages. The Quid pro quo from the lenders was 'make your payments on time and we can refinance you into a better mortgage before this loan begins to adjust?.

Unfortunately, by in large, that promise that cannot be honored in today's mortgage market. I believe that these promises that the lenders made to refinance the borrowers into better mortgages were well intentioned but naive. Seriously, in hindsight, how smart was it to put borrowers with bad credit in a long-term mortgage with the stipulation that they must make all of their payments on time to get a better loan?

The rub is that most of the people who took out these mortgages were unable to prove adequate income to support the loan. These loans were called 'stated income' loans. Meaning the 'borrower' would state the income they made and it was not verified. To that note, many people with poor credit were put into mortgages they could not afford with the promise that it would eventually their payment would go up.

That sounds pretty silly when you say it out loud doesn't it? Now that there is a 'new religion' in subprime lending, lenders have almost ceased facilitating 'stated income' mortgages. That's great, however what about the people that are still unable to prove their income whose interest rates have jumped to 11%? These are the people who will be the casualties in this debacle.

The good news is that FHA announced earlier that they would now begin to relax their guidelines with a program called FHASecure. This new program will allow people who are currently late on their mortgage due to it adjusting to refinance into low interest fixed rate mortgages. The caveat, borrowers must prove enough income to qualify.

This initiative by President Bush and the Federal Housing Authority will help quite a few people save their homes. By in large though, most of the people in these adjustable subprime loans will not be able to qualify for the new FHASecure mortgages. Something else will need to be done or defaults and foreclosures will increase.

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