New Mortgage Refinance Program Expected Shortly
Efforts by the Obama administration to help struggling homeowners have been falling flat over the past two years. While banks get bailed out for billions and trillions with a couple phone calls, individual homeowners have to go through painful, extended loan modification applications, trial periods and general lender indifference.
What options do homeowners who need help have in the current market environment?
A new refinance plan for undewater homeowners is expected any time now as Fannie Mae, Freddie Mac and FHA seek to expand their mortgage refinance options for borrowers with negative equity. The existing programs have not helped because they were limited to refinancing borrowers who had mortgages at 105% of the value of their home or lower. With over 20 million homeowners underwater today, there are millions of homeowners who owe substantially more than the value of their home.
If you have an interest in this new refinance program, submit your information and you will be contacted when the program is introduced to see if you qualify. Submit here
Need to refinance your underwater mortgage?
If you owe more on your mortgage than your home is worth, FHA has a new mortgage loan program that could help. Last September, the FHA program began allowing refinancing home owners to refinance into a new low FHA fixed rate mortgage even if the borrower was paying their existing lender less than their current loan balance at the closing. Previously, FHA would not allow home owners to refinance if they had negotiated a payoff of their existing loan that was less than the full amount owed.
For example, a borrower who owes $250,000 on a home now worth $150,000 can now go to their existing lender and offer to pay that lender off about $135,000. If the existing lender accepts the lower payoff amount, the borrower can refinance.
Please note that this new FHA short refinance loan program is not a loan modification program and is not for borrowers who are behind on their mortgage. Instead, this program rewards home owners who have paid their mortgage and qualify for a new loan except for the fact that their home value has decreased to below their mortgage amount.
Why would a mortgage lender accept a payoff for less than the full amount that they are owed – especially when the borrower is paying the mortgage? The simple answer is that many mortgage lenders have already written off these underwater mortgages because the collateral value of the properties has dropped to below the existing loan amounts. Lenders would rather get the loan paid off for a lower amount and lend the money back out than leave the loan in place but most likely to default at some point in the future.
Mortgage lenders accept payoff amounts lower than what they are owed all the time now when they approve short sales for home owners who want to sell their home. Now, mortgage lenders are being encouraged by the federal government (which owns stakes in many of these lenders) to accept lower payoff amounts and let borrowers refinance.
While a great program in theory, very few homeowners have been successfully been able to use this program over the past twelve months. So if you want to apply for this program, make sure you are working with an expert who can navigate the paperwork maze for you.
For a free analysis to see if you qualify, click here.
Lender Participation Needed
The good news is that the Federal Housing Administration (FHA) announced on September 7, 2010 that borrowers can refinance into FHA mortgage loans even if they are obtaining a short payoff of their existing loan.
The big question is whether existing lenders will participate in the refinance program and write off principal to borrowers who are not delinquent. One of the big issues still unresolved in the real estate industry are these statistics:
Total number of borrowers with negative equity: 22%
Total number of delinquent/defaulted borrowers: 10%
= Total borrowers underwater but paying on time: 12%
Those 12% of borrowers paying their loan on time but underwater represent millions of home owners nationwide. For the lenders who hold loans on these properties, it may be a matter of time before many of these borrowers just give up and turn in the keys. So the FHA short refinance program may be a way for lenders with these problem loans to get most of their money back and get on to doing other loans.
Right now there is a divergence in the mortgage modification market. If you want to sell your home and you are underwater, lenders will let you do a short sale and in most cases borrowers will be forgiven the amount of any debt more than the proceeds from the sale of the loan.
But if you owe more than your home is worth and you want to refinance at current values and give your lender the exact same amount of money, they have been completely opposed to this transaction. This is especially true if you are current on your loan.
So it remains to be seen if lenders will participate in this FHA short refinance program. Please share any experiences with lenders on comments below as everyone begins this process.
Note: This program was first released in March and few people participated because of the excessive requirements. These new rules that took effect on September 7 streamline the process and make most borrowers who are current and underwater eligible. To apply for a combination refinance-short payoff click here.
The Federal Housing Administration (FHA) issued new rules effective September 7, 2010 to help home owners who have been paying their loan but owe more than their home is worth. Borrowers will now be able to refinance their homes with a new FHA fixed rate mortgage if their existing lender will forgive at least 10% of the principal balance on their current mortgage.
Your Eligibility for the FHA Short Payoff Refinance Program
1. Your existing lender must agree to participate. This program only works if your existing lender will reduce your principal to an amount that will permit you to refinance into a new FHA loan at no greater than 97.5% of the current value of your home. The reduction must be at least 10% of the current balance of your loan (e.g. if you owe $250,000 they must reduce the princpal by at least $25,000). You can either negotiate directly with your existing lender or apply for a new FHA mortgage with a lender that will handle the negotiations for you (to be put in contact with a lending team that can help with your refinance and your short payoff negotiations, click here).
2. You must owe more on your home than it is worth, otherwise known as a negative equity position or being underwater.
3. You must be current on your existing mortgage. You can have some late payments in the past twelve months but you must be current now.
4. The property must be your primary residence and can not be a vacation or second home. Your property may be a condominium if it meets the relaxed 2010 FHA condominium guidelines.
5. You must qualify for a new FHA loan just as any normal refinancing borrower would qualify. Your income, employment and credit must meet FHA requirements.
6. Your existing loan can not be an FHA loan. The good news here is that you can have any other type of existing loan. Since most people who have underwater loans purchased them before the FHA program became popular again, you probably do not have an FHA loan if you purchased in 2005-2007.
If you meet all of these eligibility guidelines, you are most likely eligible for this short payoff refinance program.
The Federal Housing Administration (FHA) announced great news for home owners who owe more than their home is worth.
Starting Tuesday, September 7, 2010, FHA will allow homeowners to do what is called a “short refinance.” In a short refinance, home owners who owe more than their home is worth can refinance into a new FHA loan for up to 97.5% of the current appraised value of a home. The existing lender must agree to cut at least 10% off of your loan balance to qualify.
This is breaking news – details to follow.