So FHA is boasting about launching it's new short refi program for underwater homeowners.  Woot, woot.  Have you actually LOOKED at their requirements?  It reminds me of the evil stepmother in Cinderella who tells the girl that she can go to the ball "IF" she can get an impossible amount of work done.  In other words, "NOT GOING TO HAPPEN!"

The U.S. Department of Housing and Urban Development (HUD) Mortgagee Letter 2010-23 lists the eligibility requirements for lenders and negative equity homeowners.  The first glaring issue is that the lender participation is "voluntary" and "requires the consent of lenders."  Oh, great.  Here we go again!

In order for a loan to be eligible, the following conditions must be met:

1.  The homeowner must be in a negative equity position;    (That's an understatment) 

 2.  The homeowner must be current on the existing mortgage to be refinanced;  (Really?  If they're current, they're awfully lucky!)

3.  The homeowner mut occupy the subject property (1-4 units) as their primary residence;(Reasonable)     

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;    (Understandable)   

5.  The existing loan to be refinanced must not be an FHA-insured loan;  (Too bad for the folks who have FHA loans - guess they don't matter!) 

6.  The existing first lien holder MUST WRITE OFF AT LEAST 10 PERCENT OF THE UNPAID PRINCIPAL balance;   (Oh sure, THAT'S going to happen  - NOT!)   

7.  The refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75%;  (Ok)

8.  Non-extinguished existing subordinate mortgages MUST BE RE-SUBORDINATED and the new loan may not have a combined loan-to-value ratio greater that 115%;   (Oh sure, you wave your magic wand and the 2nd, 3rd, etc. liens just vanish...)

9.  For loans that receive a "refer" risk classification from TOTAL Mortgage Scoreboard (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% OF GROSS MONTHLY INCOME AND TOTAL DEBT, including all recurring debts, CANNOT BE GREATER THAN 50% OF GROSS MONTHLY INCOME;   (Wow.  And how are homeowners going to make that happen in this economy?)

10.  FHA mortgagees are NOT permitted to use premium pricing to pay off existing debt obligations to qualify the borrower for the new loan;  (Of course not - why make it easy for the borrowers?)

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  (Again, why make it easy for the borrowers?)  

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, et al.

So folks, what FHA is basically saying is that they're not going to make it easy for borrowers to qualify for their new, wonderful "bail-out" program.  No siree!  But they're going to brag about the "progress" they're making and how willing they are to help homeowners.  I hope all Americans who own homes can see past this outrageous rubbish and raise a huge ruckus over this latest affront to our dignity and intelligence.

FHA needs to improve their short refi program for negative equity homeowners!

Michele Ashbarry, Owner, Realty Partners

(760) 440-9812

info@realtypartners4u.com  (email)

www.RealtyPartners4U.com  (website)