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FHA Launches Short Refinance 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 released details on August 6, 2010 regarding an adjustment to its refinance program announced earlier this year that will enable lenders to provide additional refinancing options to homeowners who owe more than their home is worth.
When the program was first announced last year, only homeowners who had an FHA loan were eligible to refinance their loans. 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. Originally announced in March, these changes 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.
"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."
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
- the homeowner must be current on their existing mortgage
- the homeowner must qualify for the new loan under standard FHA underwriting requirements
- the homeowner must have a credit score equal to or greater than 500
- the property must be the homeowner’s primary residence
- the existing loan to be refinanced must not be a FHA insured loan
- the existing first lien holder must write off at least 10% of the unpaid principal balance
- the refinanced FHA insured first mortgage must have a loan to value ratio of no more than 97.75%
- 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%.
Interested homeowners should contact their lenders to determine if they are eligible and whether the lender agrees the write down a portion of the unpaid principal.
To facilitate the refinancing of new FHA-insured loans under this program, the U.S. Department of Treasury will provide incentives to existing second lien holders who agree to full or partial extinguishment of the liens. To be eligible, servicers must execute a Servicer Participation Agreement (SPA) with Fannie Mae, in its capacity as financial agent for the United States, on or before October 3, 2010.
For more information on FHA Short Refinance option, read FHA's mortgagee letter.
What is an SFR?
The complex details involved with short sales and foreclosures are unique calls for specialized expertise. Contact an agent such as myself that has earned the Short Sale and Foreclosure Resource (SFR) Certification through the National Association of Realtors and who is committed to guiding you through the process, setting realistic expectations, and helping you make the right decision to avoid foreclosure.
If you are in a situation where your home is “underwater” due to falling home prices, you are unable to make your current mortgage payments and you are considering pursuing options such as a short sale, deed in lieu of foreclosure, strategic default or even foreclosure, there could be drawbacks that I, as a real estate agent, cannot advise you on. For your protection, I suggest that all homeowners:
Obtain legal advice from a competent real estate lawyer regarding deficiency judgments
Call an accountant or CPA to discuss short sale and foreclosure tax ramifications
Except for certain conditions pursuant to the Mortgage Forgiveness Debt Relief Act of 2007, be aware the I.R.S. could consider debt forgiveness as income, and there is no guarantee that a lender who accepts a short sale or foreclosure will not legally pursue a borrower for the difference between the amount owed and the amount paid. In some states, this amount is known as a deficiency. A lawyer can determine whether your loan qualifies for a deficiency judgment or claim. |
