The Best Places to Seek Refinancing

SUBPRIME BORROWERS ARE clearly the poster children of the housing crisis, but they aren't solely to blame. Now, many borrowers with relatively good credit are also faltering.

Much like subprime mortgage holders, many borrowers with Alt-A mortgages — loans that fall between subprime and prime mortgages — bought more home than they could afford. With private lenders tightening their requirements so that only those with high credit scores qualify, it's been extremely difficult for Alt-A borrowers (who often either have credit scores below 680 or limited documentation or both) to refinance and hold onto their homes.

According to First American CoreLogic, a mortgage data and analytics company, the percentage of borrowers holding Alt-A mortgages who were 60 days or more behind on their mortgage payments quadrupled year-over-year to 13.6% in June. Meanwhile, Alt-A foreclosures increased from 1.8% to 7.9%, a whopping 339% increase. (Overall, foreclosure filings are up 55% between July of this year and July 2007, according to RealtyTrac.com, an online marketplace for foreclosure properties.)

"We're in the eye of the storm, and I think it's going to get a lot worse" before it gets better, says Dave Muti, author of "Mortgages: What You Need to Know."

These defaults and foreclosures follow months of loose underwriting that occurred during the real estate boom. Often, Alt-A borrowers showed limited (or at times no) income- and asset-verifying documentation, says Muti. They could also carry a high debt-to-income (the portion of monthly gross income that pays monthly expenses) or loan-to-value ratios (the amount of a mortgage compared to the value of the property).

Now, these loose lending practices have come back to haunt many homeowners. But before concerned borrowers attempt to sell their home or, worse, walk away from it, they should consider these financing options.

These mortgages originate at a private lender and are insured against default by the Federal Housing Administration (FHA). To qualify, borrowers with non-FHA fixed mortgages must have a history of keeping up with their payments. And under a recent extension by the FHA, those with non-FHA adjustable-rate mortgages (ARMs) who've missed no more than three monthly mortgage payments over the previous 12 months are also eligible, says Bill Glavin, special assistant to the FHA commissioner. This flexibility comes at a small price, however: Typically, FHA-insured mortgages may carry an extra half percent in interest.