FHA Short Refi Guidelines-Underwater Borrowers-New Short Refi ...

From the FHA Mortgagee Letter, here are the conditions for the new program:

1. The homeowner must be in a negative equity position;
2. The homeowner must be current on the existing mortgage to be refinanced;
3. The homeowner must occupy the subject property (1-4 units) as their primary residence;
4. The homeowner must qualify for the new loan under standard FHA underwriting
requirements and possess a ?FICO based? decision credit score greater than or equal to 500;
5. The existing loan to be refinanced must not be a FHA-insured loan;
6. The existing first lien holder must write off at least 10 percent of the unpaid principal balance
7. The refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent;
8. Non-extinguished existing subordinate mortgages must be re-subordinated and the new loan may not have a combined loan-to-value ratio greater than 115 percent;
9. For loans that receive a ?refer? risk classification from TOTAL Mortgage Scorecard (TOTAL) and/or are manually underwritten, the homeowner?s total monthly mortgage payment, including the first and any subordinate mortgage(s), cannot be greater than 31 percent of gross monthly income and total debt, including all recurring debts, cannot be greater than 50 percent of gross monthly income;
10. FHA mortgagees are not permitted to use premium pricing to pay off existing debt obligations to qualify the borrower for the new loan;
11. FHA mortgagees are not permitted to make mortgage payments on behalf of the borrowers or otherwise bring the existing loan current to make it eligible for FHA insurance; and
12. The existing loan to be refinanced may not have been brought current by the existing first lien holder, except through an acceptable permanent loan modification as described below.

Under the initiative, lenders that are willing to work with borrowers in order to reduce principal amounts can refinance these mortgages into FHA mortgages that are insured by the federal government, essentially reducing the lender?s?exposure to default in return for writing down the mortgage.? Under this plan, there is some risk for taxpayers, who would?be on the hook for any mortgage that defaults (according to Nick Timiraos at the Wall Street Journal, 20 percent of loans modified through the program could ultimately default.?

Other attempts by the administration to alleviate the ongoing foreclosure?problem have fallen short of the mark.? Borrowers are?falling out of?The Home Affordable Modification Program (HAMP) in droves because they did not qualify for permanent modification for a wide variety of reasons.

Although there are signs the current foreclosure crisis may be ebbing, many worry that further declines in home values could cause a whole new wave of defaults.? Demand for homes has decreased dramatically since the expiration of the first time homebuyer tax credit, and there is a massive overhang of housing supply on the market.? These conditions, against the backdrop of reduced income due to high unemployment have made conditions ripe for further declines in home values.? Many are estimating that home values have another 5 to 20 percent to fall before they bottom out.? Just over 20 percent of borrowers are underwater on their mortgages.?

FOR Short Refi Info www.PrudentFundings.com

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