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FHA Short Refi - Another Disastrous Government Program?

By
Education & Training with Professional Investors Guild

The Obama administration continues to strike out when it comes to its attempts at saving the housing market through its various mortgage modification intitiatives.  A little over a year ago it fell flat on its face with the disastrous HAMP and HAFA programs, which basically did absolutely nothing to stem the rising tide of foreclosures.  After months of trying to convince us that HAMP was working (though every shred of evidence said otherwise) the beltway spin machine finally gave up on it and announced its NEW & IMPROVED initiative, an FHA program called the "Short Refi".  Just 6 months after announcing this 11 billion dollar initiative, the administration has strong-armed, erhhhh....I mean CONVINCED 2 dozen lenders to take part in the new loan modification program. 

For those of you who may be unfamiliar with Obama & Geithner's new brain child, to qualify for one of these loans homeowners must be current on their monthly mortgage payments and not already have an FHA loan.  The new loan size can also not be any more than 97.75% of the property's current value.  The short refi program also requires huge concessions from lenders and their investors, who must agree to write off AT LEAST 10% of the principal balance.  Most investors are resistant to this idea, which is evidenced by the fact that only 3% of all modifications include any type of principal reduction.  And you wonder, why they've only been able to get 2 dozen to join the team?

The administration wouldn't release the entire list of the TWO WHOLE DOZEN that had vigorously & enthusiastically jumped into this program with both feet.  But the names they did release, are certainly an impressive list.  They include MORTGAGE GIANTS like...Wall Street Mortgage Bankers of Lake Success, N.Y., 1st Alliance Lending of East Hartford, Connecticut, Nationstar Mortgage of Lewisville, Texas, E Mortgage Management of Haddon Township, N.J. & of course, the very well known, and highly admired, Glacier Bank of Kalispell, Montana.  We've also heard from some administration insiders that they are on the cusp of adding Farmers & Merchants Bank of East Podunk Hills, Iowa, as well as a couple of title pawn shops in Munfordville, Kentucky. 

Either way, this new plan is already facing huge challenges in congress, and last Thursday the house of representatives voted to end it altogether.  And if history is any indicator of future success, this program will crash and burn right where it belongs, into the abyss of miserable failure with all of the other government intrusions into the private sector. 

But there we go spoutin' off our opinions again...what do you think?!?  Comment below, and let's start a conversation!

Comments (1)

Jim Poole
Tampa, FL
Zero Down, USDA Purchase Loans, FHA 203(K) Rehab & VA Streamline Loans

I think your right on the money Matt. I lived in Pensacola for 7 years prior to moving to Tampa in 1996. Hope all is well.

Apr 06, 2011 02:58 AM