On August 6, 2010, Federal Housing Administration (FHA) announced a short refinance program for overleveraged homes to prevent further defaults and stabilize housing markets, which will help about 4 million struggling homeowners by the end of 2012.
Starting September 7, 2010, FHA will aid certain non-FHA borrowers' current on existing mortgage, but have a loan more than property value or "underwater" mortgage. To qualify for the program, the property must be the owner occupied, the homeowner must have a 500 plus Fico credit score, and the first lien holder must write off at least 10% of the current mortgage balance or combination of loan-to-value less than 115%. The refinanced FHA-insured first mortgage must have a loan-to-value ratio less than 97.75%.
The U.S. Department of Treasury will provide incentives to existing second lenders who agree to full or partial extinguishment of the liens. To be eligible, servicers must execute a Servicer Participation Agreement (SPA) with Fannie Mae, on or before October 3, 2010.
For more information on FHA insured short refinance option mortgagee letter. Please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-23ml.pdf
Source: Brian Sullivan, HUD No. 10-173