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FHA Short Refinance Program to Launch Next Month


More relief is on the way for underwater borrowers, assuming mortgage lenders agree to take part in the voluntary program.

On September 7, HUD will begin offering FHA loans to certain underwater non-FHA borrowers who are current on their existing mortgages via the FHA Short Refinance program, originally unveiled back in March.

In order to take advantage of the FHA’s “short refi,” homeowners must qualify for the new loan under standard FHA underwriting requirements, and have a credit score of 500 or higher.

The property must be the homeowner’s primary residence (1-4 units), and the borrower’s existing first mortgage holder must agree to write off at least 10 percent of their unpaid principal balance, bringing the borrower’s combined loan-to-value ratio (CLTV) to no more than 115 percent.

Additionally, the existing loan 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.

If you’re still in the running, continue reading. If not, well, I don’t blame you. There are a lot of guidelines to meet here…

While it sounds like a lot, the Treasury will provide incentives to existing second lien holders who agree to full or partial extinguishment of the liens – though second mortgages can be re-subordinated so long as the CLTV stays below 115 percent.

That might facilitate the feasibility of the program, seeing that second mortgages can often be roadblocks to mortgage relief.

“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, in a statement.

“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.”

Currently, borrowers are also able to refinance with negative equity up to 125 percent LTV via the Home Affordable Refinance Program (HARP).

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