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Lending

FHA offers mortgage backing to the once bankrupt

Borrowers qualify despite past foreclosures

Bankruptcy

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.

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