It is actually 85%. The new loan is 90% of the current appraised value, but the original lender has to pay a 5% in fees, which nets it 85%. Those that have been in the real estate business long enough to remember when FHA insured loans were more common, can attest to what sticklers they are for dotting every i and crossing every t. Faked appraisals will not be common. It will be a small bailout for the lenders (compared to the 60-78% of FMV at foreclosure date that they’re recovering now), and a small bailout for the borrowers. But a larger bailout for the market as a whole. It will remove distressed properties from the market.
But its unlikely to actually have the effect intended. The requirements on the borrower, related to the original loan, will be difficult to qualify for where the original loans were sub-prime and/or no and low doc loans. And yes, the FHA will watch that very carefully too. The program will be a well intended dud.
