There is a new program where FHA will give loans to people with negative equity, who are current on their payments, IF the principal lender will “write off” at least 10% of the loan balance. In essence, this is like a “short sale” for refinancing, instead of just for selling a home. Here are some details provided by Inman News:
The Federal Housing Administration will launch a program on Sept. 7 that will allow underwater homeowners who are current on a non-FHA loan to refinance into an FHA-backed loan when their lender agrees to write off at least 10 percent of their principal.
The FHA Short Refinance program, originally announced in March, is designed to help homeowners in markets that have seen large declines in home values refinance into “a safer, more secure” mortgage, FHA Commissioner David Stevens said in a statement.The FHA today published a letter providing guidance to lenders on implementing the program, which is voluntary and requires the consent of all lien holders.The borrower’s existing first lien holder must agree to a “short payoff,” writing off at least 10 percent of their unpaid principal balance. The refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent.If the borrower has a second mortgage, their combined loan-to-value ratio must be no greater than 115 percent.
The Treasury Department will provide incentives to second lien holders who agree to full or partial extinguishment of their liens. To be eligible, servicers must execute a servicer participation agreement SPA with Fannie Mae on or before Oct. 3. Some homeowners who have negotiated a loan modification will also be eligible for the FHA Short Refinance program. Borrowers who have a permanent loan modification under the Making Home Affordable Modification Program HAMP can participate in the FHA Short Refinance program, and homeowners with non-HAMP modifications are eligible if they have made three monthly payments on time.
While the legalities of this program allow FHA to give these great new loans, the existing mortgage holders are the ones taking a hit. Why would they want to simply lose a minimum of 10% of their loan investment, unless the house was in danger of foreclosing, and they were going to lose more than that anyways?
From an economic standpoint, it just doesn’t make sense. There is no logical reason why a lender would be willing to do this when the current borrowers are making their payments in full as agreed upon in the original mortgage term.
Am I missing something here? It says that there will be “incentives” for second lien holders who will lose out, but it doesn’t say anything about what the primary lender gets for giving up 10% of the loan amount.
I find it a little bit hypocritical that the only “non FHA” loans will qualify for this great refinance opportunity. If the program is such a great idea, then why won’t they permit people who already have FHA loans to refinance under these great terms?
Like most of the government housing relief programs, I don’t think it is going to really work. It sounds like a great deal for underwater borrowers with negative equity, but the realities of it just don’t make sense. It seems more like a political move for politicians to prove that they are doing something to try and turn around the housing market. If I’m wrong, and this program does actually work, it could be really valuable for areas like Orange County California Real Estate, Jacksonville Florida Real Estate, Phoenix Arizona Real Estate, and Real Estate in Henderson Nevada where home values have really taken a hit.
via Refinance Option for Underwater Borrowers | Short Sales.
