FHA SHORT REFINANCE OPTION: POTENTIAL RELIEF FOR UNDERWATER HOMEOWNERS

Is your home worth less than you owe? On September 7, 2010, the US Department of Housing and Urban Development (HUD) will begin offering its Federal Housing Administration (FHA) Short Refinance Option. The HUD press release states that: “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.”

In order to be able to participate in the Short Refinance Option, a homeowner/borrower:

1. Must owe more on their mortgage than their home is worth and be current on their existing mortgage.
2. Must have their mortgage through any non-FHA lender.
3. Must qualify for the new loan under standard FHA underwriting requirements and have a credit score equal to or greater than 500.
4. Must be using this option on their primary residence.
5. 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% and all lien holders must agree to the terms.
6. The new FHA-guaranteed loan must have a loan-to-value ratio of no more than 97.75%.

The FHA press release also says the FHA Short Refinance program is voluntary and “requires the cooperation of all lien holders”. This program is not automatically open to any homeowner who is underwater on a conventional home loan; as stated previously, the borrower must meet all guidelines and satisfy other typical FHA loan underwriting prerequisites.

Furthermore, the press release states that: “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.” 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.

If you need assistance in determining your eligibility for the FHA Short Refinance program, please give us a call at 702.285.1990 and we would be happy to evaluate your individual situation.