“Starting September 7, 2010, FHA will offer certain ‘underwater’ non-FHA borrowers who are current on their existing mortgage and whose lenders agree to write off at least ten percent of the unpaid principal balance of the first mortgage the opportunity to qualify for a new FHA-insured mortgage.”
This program is aimed to help FHA’s efforts to stabilize housing markets through offering 3 to 4 million ‘underwater’ homeowners a second chance through the end of 2012.
To be eligible…
The homeowner must qualify for the new loan under standard FHA underwriting requirements & have a credit score equal to or greater than 500.
The homeowner must owe more on his/her mortgage than their home is worth.
The homeowner must be current on his/her existing mortgage. The property must be the homeowner’s primary residence.
The borrower’s existing first lien holder must agree to write off at least 10% of their unpaid principal balance, bringing that borrower's combined loan-to-value ratio to no greater than 115%.
The existing loan to be refinanced must not be an FHA-insured loan, and the refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75%.
Lenders, want to know if you’re eligible? Participation is completely voluntary. Read FHA’s mortgagee letter for more information.
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74 Comments
on More options for the underwater homeowner: FHA Short Refinance to homeowners
AUG
10
2010
OMG this is awesome! Considering that 70+% of our market sold in the last year and a half has been cash and FHA this is INCREDIBLE news for stabilization!
Anna, this is some promising news for homeowners and much needed news for agents who are looking for the light at the end of the tunnel. Thanks for putting together a great blog.
That would be a huge help for so many facing foreclosure. But would almost certainly create a HUGE rush for this, and maybe a backlog for the already backlogged Lenders !
Either way, if it reduces the potential mountain of upcoming foreclosures, it may speed up a return to a somewhat normal market !
It will be really interesting to see how many people this helps out, Anna. I certainly hope it stems the tide of foreclosures. If you've been keeping up with your payments and want to stay in your home a while, this is perfect.
The hangup to this plan is the loan-to-value ratio of no more than 97.75%. You are in a market that has been hard hit but declining prices. What % of homeowners who purchased in the last 5 years have a 97.75 loan to value ratio?
Anna Banana, good news for many, but as Cindy says, the loan to ratio value is still a bit high. We have had some homes lose as much as $200,000. But for the smaller homes, the owners may just benefit from this! Thank you!
This is great positive news for many homeowners here in AZ. It is about time, especially for those who do keep up with their payments on time. Thanks for the great article.
This is great, but what about those responsible homeowners that can't refinance because the LTV is more than 96.5% but they are not quite yet OVER what it's worth. It is not fair that good homeowners have to keep paying 2.5% higher than the going interest rate due to declining value. Appraisals need to be rethought!
Anna ~ Perfect re-blog and great information for those in NOT so DEEP water! Comments above are right when the loans are 100k or more under value... but great opportunity for those who fit in this box!
Ha Steve - 3 years ago not so much tech savy! Thanks to AR I caught up and keep on running!
Wendy I too found that interesting. 500? Seems low to me. But if they're in the house and current on payments that saying a lot.
Cindy - agreed. This is more likely a niche - and the homeowners who do fit the bill should take advantage of the program. Our job to get the info out.
Andrea -agreed. Same going on here in Phx but I know there are some folks that are in this situation.
Slyvia -Yeah great to see you commenting! Yes I do think it will help some of our folks. See you at WCR next week! Don't forget your bottle LOL
Coral I do believe the appraisal issued is being re-visited as it needs to be changed.
Lou - not sure how many are out there - but if we all get the word out there will be more families helped.
Carra - yes let's get the word out to those who fit the guidelines. Oh yes I am well aware of of how many are so upside down, especially here. That's why we're knee deep in short sales.
Anna, I have been trying to follow these new affordability incentive programs, people contemplating this should also look at the possible 1099 income for their forgiven debt. this is the same as income.
Anna: About a year and a half ago, it seems that some banks were offering something like this, but nobody had ever closed one. Maybe it'll take off this time. After all, it begins on my hubby's birthday which should be a spectacular day!
It makes a lot of sense, that's got to cost the banks less than the whole foreclosure process. Hopefully a lot of folks will be able to get help from this.
Thanks for the information Anna. In our market it may be tough for many people to qualify for this type of refinance, but hopefully in other parts of the country it will help people out. Best of luck to you.
This looks very interesting. I hope it works better than many of the other things that have been tried recently. Keep us posted on whether or not this is a success.
Lane we gotta be quick to keep up with all the programs etc out there.....yikes! No sleeping for us!
Richard -it's good to know, isn't it. Let's get the word out to those it works for......
Dave -your client will thank you a million times over.
Steve that's why I always recommed talking to CPA and attorney.......they need to know the whole story.
Melissa - hmmm I don't remember that but there have been so many 'trys' out there......some of them will work , others, not so much. Gee...I wonder which ones LOL
Michelle - I don't think this group is going down that road....but mabye they're thinking they will?
Jerry - we're in the same area and I do know some folks this will help out. They are out there....not as many as other areas but helping one out is a step in the right direction.
Elliot - let's hope!
Joan this one makes sense to me. Some of the others...........
Anna: I would like to share Renee's enthusiasm for this program, but I fear that lenders just will not be motivated to participate. Why do I think that? Because this program is a no-brainer. It makes perfect sense. Therefore, lenders won't be on board.
Ms Banana: First of all... an excellent post. Now, my take on the 500 credit score... but the owner must be current in payments... is that, although the owners apparently ARE in trouble as far as their credit is concerned... they appear to have done whatever they needed to do... to keep their house payment current.
I would think that this would be proof that regardless of what else was going on... that they were very serious about keeping their house. It shows that they are trying to be "survivors..." if this makes any sense.
So... even with their credit scores being so low... the current status makes them less of a risk to FHA... than they could be. In addition, it is obvious to me that this FHA program has the blessing of the current administration... in the hopes of slowing down or helping to reverse the current short sale/foreclosure trend.
Secondly, I watched your prospecting video all the way through. Excellent ! The key words I focused in on were your "A list"... and of course, your "relationship building." For a very long time I have referred to my "sphere of influence" as my "sphere of relationships." It may sound corny, but these days, or any days for that matter, relationships are key in anything and everything we do. And excellent video. I just love it when you "go Bananas."
Based on this, the definition of responsible homeowners are those who are not behind on payments. There are many reasons peole fall behind on payments. Does that mean homeowners who lost their jobs when their companies disappeared are irresponsible? Are homeowners who fell ill, got injured or spouses died irresponsible? Are borrowers who had to relocate for job purposes irresponsible?
Anna - I know it's not your definition, you're just quoting FHA. Thanks for posting.
This is interesting. I wonder if a homeowner could have been underwater at one time, but have brought the loan current at the time of the refinance would qualify for a loan.
I agree with Dave - I think that the term "responsible homeowner" is an insult to the millions of Americans who were victims this economy through job loss or reduced income.
I know you're just posting some news, so it's nothing personal. But, what about all the people that didn't get this in time, and lost their home. Perhaps when they tried to do a loan mod, and that didn't work . . . Or, they tried to short sale . . . still treading water, but lost it anyway. And Dave #30 makes a good point. There's a lot of responsible people that have gotten so messed up in the past 2 years.
@ Dave in #30 and Carla in #34: If I wanted to, I am sure I could pick this proposal clean, and come up with all sorts of things it might be missing. But, come on, now. The program HAS to have some sort of boundaries. Oh, if only we could do everything we wanted to make things better for ALL of the distressed homeowners in bad shape. But, we cannot. Let's take this program, and simply help as many people as we can with it. Just my take on things...
I think it's great that the government is adding programs to attempt to help homeowners. My concern is will the lenders write down the balance on performing loans?
I've been telling anyone who will listen for months that this program has been desperately needed! How many people are stuck with 6-7+% interst rate loans, are current, but cannot refi since they have no equity? TONS!
As for the 500 credit score, credit scores are a joke to begin with and rarely truly representative of a buyers willingness to do whatever it takes to keep their home. I think the 500 level is a tacit acknowledgment of this by the government, considering you mus tbe current on your payments to qualify.
The money saved will go out of the banks pockets and back into the ecoomy where it is sorely needed. Risk is low because if payments were being made on time, that should continue with lower payments.
And this will help people with option-ARMs that are not currently govt backed, but have reset or are coming up soon! Lock in at 5% or less on 30 yr fixed, that helps a lot, especially after the 10% write down by the lender.
Hopefully lenders will cooperate,, otherwise it's just another good idea scuttled by Wall Street and their securitization of mortgages.
Ana, Thanks for the post. Finally a life preserver that really has the potential to provide financial assistance. Clearly not a panacea for all, but a great help to many!
Good news for the hard hit areas. Oklahoma will not be a big place for this but a few might come through. I am going to call some lenders today to see if they will be participating. I remeber when FHA siad they could do 580 credit scores with 10% down but no lenders would back it.
Anna, such significant and timely news (and well formatted I might add)!. I'll remain hopeful at this point that the lending community will adopt (we are an incentive-driven society...) - and help us get our economy back on track.
I spoke to a lender yesterday about this and he said it is still up to the banks to say yes or no. It "sounds" good but...will it work? Only time will tell if it will or if it will fail miserably like the HAMP program.
Thanks for sharing this, Anna. I think it’s great to have one more tool that may help underwater homeowners. The question in my mind is whether lenders will agree to a short payoff on a loan that their underwater borrowers are obviously committed to paying. What’s the lender’s motivation? I suspect if the borrowers have listed their home as a short sale… and perhaps have already submitted a short sale package to the lender… then maybe the lender will be more motivated to the short payoff instead of a short sale. Again, thanks for sharing.
Thanks Anna, I guess my concern is if the 10% right off will appear now on the home owners credit report as some sort of write off. Will this have to be reported on your tax like a short sale deficiency might?
Things to think about :) (now following you on twitter and a subscriber - nice post!)
do you really think that homeowners with low 500 scores are going to get this loan? i don't.
targeting 3-4 million, when will we learn?
i don't think, and please correct me if i'm wrong, that there is a single govern(mental) program that has come close to the estimates that it claimed would be helped.
however, for those very few that this program helps, that's great!
Tina, you just hit the nail on the head. Here in AZ, most of the distressed homeowners that I'm dealing with on a daily basis currently have a loan/value ratio of under 50%.
Before everyone gets too excited about this program, please read the mortgagee letter that HUD just published on Friday, August 6th. This letter explains the program in detail. There are some glaring problems with it, but the thing that stands out the most for me is the following...
First, and most importantly, the lenders are the one's who make the decision on whether to participate, on a case-by-case basis. If they choose to write down the principal balance, they take the financial hit, and get a WHOPPING $500 incentive for doing so. I don't think lenders are chomping at the bit to write down principal for such a paltry reward, especially if they have a borrower who has not missed any payments. Why would any lender in their right mind even consider this proposal?
Like HAFA (which is proving to be yet another government-sponsored "flop"), I think this is yet another gimmick to try and show how much the current administration is trying to help homeowners. With the elections just 3 months away, I expect to see more of these types of "announcements", in order to get more votes in November.
Sorry to be a "negative Nancy", but I've had it with these government programs that are destined to fail from the time they are announced.
@Tina (#46): We face the same issue here in southern California. But if I understand this new FHA Short Refinance tool correctly, the lender can write off more than just 10%... it just has to be at least 10%. That means in your scenario, the lender has to be willing to write off $47,250 to get the LTV down to 97.5%. Which is why I asked in my comment (#45) "...whether lenders will agree to a short payoff on a loan that their underwater borrowers are obviously committed to paying. What’s the lender’s motivation? "
Interesting....the problem is that at some point, everyone is going to feel entitled to give aways and principle reductions. I'm concerned where this will all end up. I know it's a great thing for an individual family....and that tugs at my heart, but in the long run? we are already facing the possibility of deflation and that's going to be a real problem. Great post....but.....
Anna, thanks for this timely post and your insight. However, I'm with the naysayers on this one. My confidence in lenders embracing a voluntary write-down has been degraded over the past two years. Also, much of what we're seeing in California involves properties with second liens, so apparently the FHA program is irrelevant in these cases, as the first lien is often covered by sufficient equity. I hope this program helps some people, but I'm not jumping for joy yet.
One day, lenders will have to step up to the reality that the ultimate way to revive the real estate market is to re-value properties at their current market worth. Otherwise, in hard-hit areas like California, Florida, Arizona and Nevada, it will continue to be a long road of short sales, foreclosures and strategic defaults...all of which accomplish the same thing, but in a more painful, expensive and longer way.
FHA has allowed "short refi's" for at least a couple years, maybe longer. Overt the past year they have issued multiple Mortgagee Letters regarding changes, for the better or worse, to the short refi program. Mortgagee Letter 09-52 back in December was the most recent letter from FHA and gave lenders guidance on how to deal with short refi's and homebuyers who had had a short sale. There were no restrictions on total loan to value.
This new announcement is actually MORE restrictive that what FHA had previously allowed. I think FHA just keeps announcing the same program for publicity sake. It is a rare situation where a home owner has good enough credit and income to qualify, while at the same time a lender who is willing to voluntarily drop at least 10% principal, or whatever it takes (as long a the lener write off at least 10%) to get down to 97.75% LTV.
I do not want to be the bad banana in the bunch. I will wait and see how it plays out. Often these programs have so many hops they are more about trying to make it look like the government is really doing something than any actual help.
I believe the caveat here is that the lender must "agree" to reduce the balance by 10%. Having worked on many short sales I am dubious at best about a lender waiving 10% of the principle when the account is current. I have to kind of go along with Gene on this one...not being negative because some lenders will go along with this but the majority we'll have to wait and see.
Good post, with caveat that lenders have to get on board.
For those trying to figure out the way it would work, the most feasible scenario would be one where there is a second mortgage (which would have to be subordinated) - so it could work like this:
$230,000 first Mortgage, $30,000 2nd mortgage, using the program, get the first lienholder to write off $24,000, and the 2nd to agree to subordination, IF the property is worth $210,000 -- then the program works. You meet all the various conditions. In this example they begin $50,000 underwater, and end up about $26,000 under. Not the very best of solutions, but something that might get them to stay in the house and keep making the payments. Of course, the big issue is what was their initial interest rate (and was it locked), and what is the new interest rate, because there are lots of ways the payments could go up -- causing a worse situation for the borrower, even with $24,000 less owing.
Aaron - oh that is sad sad thing - and somehow it makes sense to me. We've all scratched our heads a million times this past few years and thought......what the heck?????
Karen, yes they are survivors. There are many of them out there trying to make this whole mess work. Some are able to hold on - right now we're working with quite a few that have held on as long as they can and just have nothing else to make ends meet. And these are all very responsible people and done all the 'right' stuff all their lives.
Hey Karen - thanks so much for your feedback! Much appreciated! It is all about relationships - I've alwasy seen that as a key factor in this industry. And of corse that is backed up with expertise and knowledge.
Dave - I totally hear what you're saying and I may go back and re-phrase the post. It clearly, on my end a judegement call. Thanks for pointing this out.
janeanne - you're welcome!
Kate - agreed. Responsible isn't the word cause many folks are responsible but lost their job etc etc and clearly deserve a break too.
Chris - good points, thanks for adding to the conversation.
William - let's hope it helps some folks. We all know there are lots of programs out there that did diddly squat to help out.
Joe - that is the kicker, will lenders embrace it or not?
Fernando - I hear you - see the remark above - didly squat.
Lisa - let's hope.......
Missy - exactly - time will tell - again.
Michael - let's hope.......
Bill I would think the lenders would see this as an opportunity to 'save' the situration rather than letting it go to foreclosure at some point like mass amounts of them did in 08,09. It might be a solution for some folks IF the lenders get on board.
Tina - totatally agreed. We are neck deep in the same situations. Again - as I said this may help a niche of folks - and/or it's is just another quick fix.
Although the cover information indicates they want to help 3-4million homeowners, the mortgagee letter, says they are only looking at helping 500,000 to 1.5 million.
The word "responsible" is right on the FHA website that you linked to, so you weren't passing judgment on borrowers, FHA was. You were just the messenger. Straight from FHA's site:
"Effort designed to encourage principal write-downs for responsible borrowers
WASHINGTON - In an effort to help responsible homeowners..."
I don't see a motivation for lenders to take at least a 10% hit on the mortgage for a borrower who is making payments on a timely basis. That would take quite some persuasion...
Anna, in theory has a lot of potential (so do HAMP and HAFA) but the success will only be determined by the lenders willingness to take at least a 10% principal reduction (thank Eileen).
They have been reluctant to do so up to this point, so we shall see.
I don't know about all the other states, but in the state of Indiana, a REALTOR(r) cannot help someone modify. As a matter of fact, we could loose our license just for making a phone call to check on the progress of a modification. Here Modifiers have to be licensed, and a REALTOR(r)'s job is to buy and sell real estate, not to help modify loans. Before trying to help clients do the mod job, check your state laws. Telling your clients about it is not the same as helping them doing it...
Anna thanks for the info and I'll re-blog for folks in the Hendersonville and Western NC area to be aware of.
Obviously the boundries, etc won't work for many for many different reasons. But if this program can help any and lenders cooperate it is worth a try. I feel for all who have fought hard to hold on to their homes and lost the battle but perhaps this can issue some hope to prevent other responsible home owners from the same fate. I suspect many whose loans were zero or low downs will still be walking away and adding to a problem for years to come for the housing market as they will have to rent and not be in a position to purchase.
I don't think anyone should get too excited over this... Like the other government programs of late, if the program is voluntary on the part of the banks, I doubt that too many will be helped.
Why should they? If you're able to keep your payments current, why should the bank decide to forgive a portion of your outstanding balance? They're in business to make money, not to be charitable.
Great conversation. Clearly there is a great deal of unrest on all these government programs - remember - this post was strickly a 'reporting' out of information as to what's the 'latest' fix out there.I appreciate all of your comments. I normally prefer to address each of you but this last few days is very busy between clients and a risk management conference. Gee - that's whole other subject of which I can't wait to write about. It's huge - as so much has changed the last few years.
Only time will tell how successful this program will actually be. Getting the current lender to write off 10% of the current balance will eliminate many homeowners.
From my understanding of this program, it makes sense for the current lenders because of the incentives to reduce the debt. But we don't have any lenders or investors that will take these loans NEW refinanced loans in the secondary market. Do you know of any?
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If eligible, you now have additional refinancing options to help keep your home afloat.
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OMG this is awesome! Considering that 70+% of our market sold in the last year and a half has been cash and FHA this is INCREDIBLE news for stabilization!