Friday, September 10, 2010

The FHA’s ‘Short Refinance’ Program. Program is great for folks who are Under water

If it works well, the program could deal with the risks of strategic default, from homeowners who could afford to make their payments but choose not to because they’re so far underwater. But the story noted how many of the knots that have snarled previous modification efforts—including dealing with second liens and contracts that govern mortgage securitizations—could also stymie the latest initiative.

Q: Who can participate?

Generally speaking, the program is designed for borrowers who are current on their loans and owe more than their properties are worth. Borrowers are refinancing into FHA-backed loans and must be able to meet all traditional underwriting guidelines (including a minimum credit score of 500 and an income that can support the current loan payments).

Loans already backed by the FHA can’t participate. Fannie and Freddie aren’t currently participating in the program, though it’s possible that they could decide to do so in the future. Fannie and Freddie currently have programs to allow borrowers to refinance loans for borrowers that are underwater, up to 125% of the property’s value. (This site allows you to find out if your loan is owned by Fannie or Freddie.)

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