FHA recently launched short refinance opportunities for homeowners “underwater” in an effort to encourage principal write-downs for borrowers that are responsible.
This effort to aid homeowners that owe more on their home loan than the value of the property, the Department of Housing and Urban Development explained details on the adjustment for these homeowners to utilize the new refinance program that was released earlier in 2010 with options for homeowners that owe more than the property is actually worth.
Beginning on September 7, 2010 FHA will offer specific underwater for non-FHA borrowers that are up to date on their home loans and whose lending companies agree to write down at least ten percent of the principal balance left on their first mortgage, the chance to qualify for a new FHA insured loan.
The program known as “The FHA Short Refinance” option aims to help those that owe more on their mortgage than their property is worth, which is referred to as “underwater” due to local markets that recently saw declines in the values of homes. The new program was introduced in March and with these changes along with other financial programs that are in place with the aid of the Administration to meet the goal to stabilize the housing market via a second chance to up to three to four million homeowners that are struggling through December of 2012.
FHA Commissioner David H. Stevens stated, “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,” and went on to say, “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.”
Lenders can read over the mortgagee letter provided by the FHA to learn how to implement the new program. Participation in any of the programs is voluntary and does require all lien holders to agree to the conditions.
To be eligible for a new FHA loan, the homeowner must:
• be in a negative equity position- owe more than the property is worth
• be up to date on existing home loan
• live in the home as the primary residence
• qualify under the FHA underwriting requirements
• possess a FICO based credit score equal or higher than 500
• the current home loan cannot be a FHA insured loan
• the existing lending company must write down at least 10% of the principal
• the new FHA insured loan must have a loan to value ratio not greater than 97.75%
• all non extinguished subordinate loans must be re-subordinated and a new loan may not be great once combined to 115% loan to value ratio
• loans that get refer risk classification from the total mortgage scorecard or are manually underwritten, the total mortgage payment which includes all mortgages first and subordinate cannot be higher than 31% of the gross income and total debt which does include all recurring debt which cannot be larger than 50% of the gross income received monthly
• FHA mortgagees cannot use premium pricing to pay off any existing debt in order to qualify the borrower for a new loan.
• FHA mortgagees cannot pay the mortgages payments for the borrower or bring the current loan up to date in order to qualify for the FHA loan
• The current loan that is to be refinanced cannot be made current by the first lien holder unless via an acceptable permanent loan modification loan.
To be eligible, servicer’s must perform a Servicer Participation Agreement through Fannie Mae on or before October 3, 2010.