FHA Launches Short Refinance Program for Underwater Homeowners

Effort designed to encourage principal reductions for responsible borrowers

The U.S. Department of Housing and Urban Development announced on August 6, 2010 a new program, the FHA Short Refinance option to help responsible homeowners who owe more on their mortgage than the value of their property.  This program is designed specifically for homeowners who are “underwater” on their current non-FHA mortgage.  The program is not open-ended, however the administration believes this program along with several others will help 3-4 million homeowners who have seen the property value drop below their current combined mortgage balance.

“We’re throwing a life line out to those families who are current on their mortgage and are experiencing financial hardships because property values in their community have declined,” said FHA Commissioner David H. Stevens. “This is another tool to help overcome the negative equity problem facing many responsible homeowners who are looking to refinance into a safer, more secure mortgage product.”

This opportunity allows borrowers who are current on their mortgage to qualify for an FHA refinance loan provided that the lender or investor writes off the unpaid principal balance of the original first lien mortgage by at least 10 percent.  Some of the other requirements include and are not limited to the following:

1.  The homeowner must be in a negative equity position;

2.  The homeowner must be current on the existing mortgage to be refinanced;

3.  The homeowner must occupy the subject property (1-4 units) as their primary residence;             

4.  The existing loan to be refinanced must not be a FHA-insured loan;

5.  The existing first lien holder must write off at least 10 percent of the unpaid principal balance;    

6.  Non-extinguished existing subordinate mortgages must be re-subordinated and the new loan may not have a combined loan-to-value ratio greater than 115 percent;

Property values in San Bernardino/Riverside/Ontario; the Inland Empire market has seen huge decreases in value and is considered one of the hardest hit areas in the United States.  The Obama Administration has been working tirelessly in their efforts to bring about a much more stabilized housing market through numerous programs.  Along with Hope Now , HAMP…Making Homes Affordable, FHA Short Refinance is the latest program designed to help distressed home owners stay in the current home and avoid foreclosure.

FAQ’s

Are there any incentives the exisitng lien holder will receive if I have a successful refinance?

The U.S. Department of Treasury will provide incentives to the existing second lien holders who agree to full or partial extinguishment of the liens.

Are there any additional underwriting guidelines associated with this program?

No, applying for the FHA Short Refinance is the same as applying for any normal FHA refinanced loan.

I just modified my current mortgage using HAMP, am I still eligible for the FHA Short Refinance Program?

If the modification was made under the terms of the Making Home Affordable Modification Program (HAMP), the loan may close the month following the date the modification was permanent.  If the modification was a non-HAMP modification, the borrower must have made three monthly payments on time and the modified mortgage must be current for the month due.  If the loan is still in a temporary or trial period, the loan is not eligible.

If you have any questions or concerns, your professional mortgage loan originator will provide you the detail for this program.  Or you can contact Mark Estermyer for any information you may need in deciding which option will best suit your set of circumstances.  To review the mortgagee letter issued by FHA on August 6, 2010, click here.