FHA launches short refi for underwater homeowners

Refinancing options for some underwater homeowners were announced last week by the U.S. Department of Housing and Urban Development (HUD). Offered through the Federal Housing Administration (FHA), the Short Refinance option will begin September 7.

FHA will offer the new FHA-insured mortgage to certain “underwater” non-FHA borrowers who are current on their existing mortgage and whose lenders agree to write off at least 10 percent of the unpaid principal balance of the first mortgage.

This and other programs that have been put in place will help the administration meet its goal of stabilizing housing markets by offering a second chance to up to 3 to 4 million struggling homeowners through the end of 2012.

“This is an exciting new program that could help keep more people in their homes,” said David McCarraher, senior account liaison, for the FHA Office of Single Family Housing in Philadelphia.

“This is an incentive for borrowers who have been making the mortgage payments but their home isn’t worth what they owe on the mortgage,” McCarraher explained. “These homeowners are having trouble refinancing with better rates because they don’t have any equity in their home. We’re encouraging lenders to participate in the program and the U.S. Treasury Department will provide incentives to existing second lien holders as well.”

FHA Commissioner David H. Stevens said, “We’re throwing a lifeline out to those families who are current on their mortgage and are experiencing financial hardships because property values in their community have declined. 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.”

FHA’s mortgagee letter explains how lenders can implement this new enhancement.  Participation is voluntary and requires the consent of all lien holders.  To be eligible, homeowners must:

• Owe more on their mortgage than their home is worth
• Be current on their existing mortgage payments
• Have a credit score of at least 500
• House must be primary residence
• First lien holder must agree to write off at least 10 percent of unpaid principal balance.

FHA’s goal is to give underwater borrowers payment relief that is safe, to help them stay in their homes and to benefit communities impacted by lower values.

For more information on FHA Short Refinance option, read FHA’s mortgagee letter and the accompanying fact sheet. REALTORS® can also contact the FHA Resource Center at 800-225-5342.

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Tags: FHA, HUD, mortgages, refinance, underwater

This entry was posted on Wednesday, August 18th, 2010 at 6:00 am and is filed under Economics, Industry News. You can follow any responses to this entry through the RSS 2.0 feed.