FHA is Throwing Homeowners a Life Vest

FHA Throws Homeowners a Life Vest

As of September 2010, FHA is throwing underwater homeowners a life vest.  This new government housing program (FHA Short Refi) is geared to help those homeowners who owe more on their primary residence than what it is worth.

If you are current on your mortgage, but have negative equity, then you could qualify to refinance into a FHA loan.  The only catch really is that your existing lender must agree to write off at least 10% of your loan balance.  Example: 

Before              $300,000 loan balance @ 5.0% interest = 1610 (P+I)

After                $270,000 loan balance @ 4.5% interest = 1368 (P+I)

Savings             $242/month

Like all the other government “help for homeowners” programs, this program is also voluntary and requires your lenders participation.  If the homeowner is current on his mortgage payment, I have to question the lenders’ response. 

Usually, before a lender is willing to agree to accept additional loss such as writing off part of a mortgage balance, the homeowner would need to be seriously delinquent.  In this case, it’s likely to be more costly for the lender to foreclose than to write off balances.

CoreLogic reported in June that 11 million residential homeowners (23%) were in negative equity positions.  This program will be funded by $14 billion from the Troubled Asset Relief Program (TARP) funds.