So many home owners owe more than their home is worth (under water). Some have tried to modify their loan, short sale, refinance and have run into a frustrating brick wall. 
Well here is a new alternative. FHA has a new loan that will allow refinancing for homes under water. They do have very specific requirement but it is worth a shot. Please read the following article from the Sunday September 5, 2010 S.F. Chronicle written by Kathleen Pender in her Net worth column. Please do not hesitate to contact me for FHA approved lenders. lee@leesellsmore.com or 877-Lee-Sells
KATHLEEN PENDER
September 5, 2010
S.F. Chronicle
Net Worth
FHA to offer short refis
On Tuesday, the government will launch yet another program for homeowners who need help with their mortgages.
This one will let certain borrowers who are current on their payments and owe more than their homes are worth refinance into a new mortgage guaranteed by the Federal Housing Administration, but only if the owner of their first mortgage agrees to reduce the principal balance by at least 10 percent.
It’s called the FHA short refi program. Instead of selling a home for less than the outstanding debt (a short sale), the homeowner refinances for less than the outstanding debt.
Like the government’s other mortgage modification and refinance programs, this new one is voluntary on the part of lenders and servicers and has lots of restrictions. These factors are likely to limit its reach.
Some of the new rules:
The owner must use the home as a primary residence, be current on payments, be underwater (owe more than the home is worth), have a FICO score of at least 500 and meet certain debt-to-income ratios.
The existing loan can not be an FHA loan. It does not have to be owned or backed by Fannie Mae or Freddie Mac, although it can be.
The homeowner must qualify for the new loan under standard FHA underwriting requirements. The new FHA loan can be fixed-rate or adjustable.
The new loan balance must be less than FHA limits. In most Bay Area counties, the limit this year is $729,750 for a single-family home. To look up the limit in your county, see links.sfgate.com/ZKFV.
The borrower’s first-mortgage holder must agree to write off at least 10 percent of the principal balance, bringing it to no more than 97.75 percent of the property’s market value.
If there is a second mortgage, its owner must agree to subordinate it to the new FHA loan. Also, the balance of the new first and second mortgage combined can not exceed 115 percent of the home’s market value. That may require the second-mortgage balance to be reduced, perhaps to zero.
The government is providing incentives to owners and servicers (which are often the same bank) to reduce the balance on second mortgages. The servicer can receive $500 per loan. The owner can get 6 to 21 cents for every dollar the balance is reduced.
The money for these payments is coming from TARP, the Troubled Assets Relief Program.
Second-mortgage holders might agree to this deal if they think the homeowner is likely to do a short sale or go into foreclosure, in which case they might get zero.
Will lenders agree?
The program is not making payments to first-mortgage holders, who must agree to accept less than 100 percent of what they are owed so the homeowner can refinance into an FHA loan.
But some might agree to it if they think it will net them more than a foreclosure.
“There are a bunch of costs in a foreclosure you don’t have in a refi,” such as attorneys’ fees, maintaining the vacant home and paying an agent to sell it, says Diane Thompson, an attorney with the National Consumer Law Center.
“Investors have been asking for a short refi program for at least two years,” she says.
“One big concern they have is that losses are being hidden or delayed.”
Some investors might prefer taking a loss now, rather than waiting and having the loan go into foreclosure or into a modification that fails.
Most home mortgages were put into pools and the cash flows (mortgage payments) were divided up and sold to investors as securities. The highest-rated securities get paid first, the lowest-rated get paid last.
In a short refi, investors who own the top-rated securities could get back all their investment. Owners of lowerrated securities could take a loss, but it might be less than what they would lose in a foreclosure.
A short refi “may be a way for (lenders) to bite the bullet and take the loss now, especially in markets that are continuing to decline in value,” says Rick Harper, director of housing with the Consumer Credit Counseling Service of San Francisco.
Borrowers who want a short refi should contact their loan servicer. If that’s not fruitful, they can refinance through any FHA-approved lender, although the original servicer still has to approve the refi.
To learn more about short refis, see links.sfgate.com/ ZKFW.
Other refi options
The short refi program probably won’t help borrowers who are barely underwater and can afford their payments.
“If (lenders) don’t think the customer is in danger of imminent default, they may not be willing to write down the principal balance,” says Vicki Bott, a deputy assistant secretary with the U.S. Department of Housing and Urban Development.
It also won’t help borrowers who are not underwater, but who cannot refinance into a Fannie or Freddie loan because their loan-to-value ratio exceeds 80 percent. These borrowers might be able to refinance into a standard FHA mortgage, which allows loan-to-value ratios of up to 97 percent. Rates and closing costs are competitive with conventional mortgages, although FHA loans require mortgage insurance. For more, see links.sfgate.com/ZKFX.
Borrowers who are underwater but can’t get a short refi might qualify for the Home Affordable Refinance Program, but only if their loan is owned or backed by Fannie or Freddie.
Under this program, a borrower can refinance into a new Fannie or Freddie loan for up to 125 percent of the home’s market value, although not all lenders will go that high.
There is no principal reduction in this program.
For more, see links.sfgate.
com/ZHOC.
To investigate these and other options, including mortgage modifications (in which a lender changes the terms of an existing loan), contact a HUD approved mortgage counselor.
To find one, call (800) 569-4287 or go to links.sfgate.com/ ZEVN.
Net Worth runs Tuesdays, Thursdays and Sundays. E-mail Kathleen Pender at kpender@sfchronicle.com. Read her blog at sfgate.com/blogs/pender.
“Investors have been asking for a short refi program for at least two years. One big concern they have is that losses are being hidden or delayed.”
Diane Thompson, National Consumer Law Center
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