October 3, 2022

FHA Short Refinancing Plan to Help ‘Underwater’ Homeowners

Home Mortgage Refinancing

FHA Short Refinancing Program Announced

In an attempt to assist responsible home owners whose mortgage debt is greater than the current value of their homes, the U.S. Department of Housing and Urban Development has begun offering a newly developed option for refinancing their homes.

Initially announced last March, this augmentation of the Federal Housing Administration (FHA) home refinancing program will provide assistance to a number of ‘underwater’ non-FHA home owners. They must not be behind on their existing mortgage payments and their lenders must be willing to write-off a minimum of 10% of the unpaid balance of the first mortgage.

The new FHA Short Refinance program is aimed at helping consumers who are in financial distress due to the fact that home values in their local housing markets experienced sharp declines. This change is intended to support the Obama Administration’s goal of stabilizing real estate markets by giving a fresh start to between 3 and 4 million struggling home owners through 2012.

Taking part in FHA’s short refinance plan is entirely voluntary and requires the concurrence of all involved lien holders. Eligibility for a new loan is limited to home owners who owe more on their home mortgage than their property is worth. It also requires that they be up to date on their current mortgage.

Home owners must still qualify for the new mortgage loan following regular FHA underwriting specifications. The home must be the home owner’s primary residence and their existing primary mortgage holder must consent to writing off no less than 10% of the outstanding balance. Additionally, the loan that is to be refinanced cannot be an FHA insured loan. The loan-to-value ratio of the new FHA-insured mortgage must be no higher than 97.75% and the combined loan-to-value ratio must be 115% or less.

To make the refinancing of new FHA-insured loans under this program attractive to any second mortgage holders, the U.S. Treasury plans to provide financial incentives if they agree to dropping their liens.

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