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FHA Refinance of Borrowers in Negative Equity Positions

By Anonymous

This is the introduction of the program originally announced back in March.

From the FHA: FHA Launches Short Refi Opportunity for Underwater Homeowners

In an effort to help responsible homeowners who owe more on their mortgage than the value of their property, the U.S. Department of Housing and Urban Development today provided details on the adjustment to its refinance program which was announced earlier this year that will enable lenders to provide additional refinancing options to homeowners who owe more than their home is worth. Starting September 7, 2010, the Federal Housing Administration (FHA) will offer certain 'underwater' non-FHA borrowers who are current on their existing mortgage and whose lenders agree to write off at least ten percent of the unpaid principal balance of the first mortgage, the opportunity to qualify for a new FHA-insured mortgage.

The FHA Short Refinance option is targeted to help people who owe more on their mortgage than their home is worth - or 'underwater' - because their local markets saw large declines in home values.
...
Today, FHA published a mortgagee letter to provide guidance to lenders on how to implement this new enhancement. Participation in FHA's refinance program is voluntary and requires the consent of all lien holders. To be eligible for a new loan, the homeowner must owe more on their mortgage than their home is worth and be current on their existing mortgage. The homeowner must qualify for the new loan under standard FHA underwriting requirements and have a credit score equal to or greater than 500. The property must be the homeowner's primary residence. And the borrower's existing first lien holder must agree to write off at least 10% of their unpaid principal balance, bringing that borrower's combined loan-to-value ratio to no greater than 115%.

In addition, the existing loan to be refinanced must not be an FHA-insured loan, and the refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent.

The FHA insured first is less than current appraised value, and the FHA is not involved in any principal reduction (that is the responsibility of the lender).

Note: this has nothing to do with that nonsense rumor yesterday about a government principal reduction program. This was previously announced in March.

Full post as published by Calculated Risk on August 06, 2010 (boomark / email).