So What Exactly Is An FHA Secure Short Refinance?

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Education & Training

Hi I'm Paul Dunn, Tucson's #1 FHA Mortgage Loan Originator and I am constantly getting the question "What is an FHA Secure short refinance".  A Short Refinance is a transaction where the current lender forgives debt in order to complete the transaction. 

Here's a real life example:  (very simplified)

Let's say you bought your home at a market peak for $450,000 and you still owe $425,000.  Since the time you bought your home, the market values have been dropping steadily and a similar home in your neighborhood just sold for $350,000.  You bought your home on an adjustable rate mortgage that is getting ready to reset... and your payments are going to rise (or has risen) $800 a month.  Instead of foreclosing the lender agrees to forgive $95,000 of the debt and you can now refinance your home with the FHA Secure Short Refinance.

The FHASecure Short Refinance helps keep people in their homes, lowers the number of completed foreclosures and helps preserve neighborhood home values.

The tricky part is getting your current lender to agree to a short pay.  You will have to undergo a total financial review and prove to your current lender that your loan is putting you into a position where you may not be able to make your payments and you will lose your home.

The FHA Secure also allows for the current lender to subordinate the portion of the debt that cannot be refinanced into the new loan.

Paul Dunn
Tucson's #1 FHA Mortgage Lender

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Rainmaker
630,064
Associate Broker Falmouth MA Cape Cod Heath Coker
http://www.CapeGroup.com & http://www.REindex.com - Falmouth, MA
Heath Coker Robert Paul Properties Falmouth MA

And do they give you a 1099 that you then have to pay taxes on?  Doesn't that just transfer the debt to the US Govt / IRS who does not do any forgiving according to what I've heard.

Jul 11, 2008 03:14 AM #1
Rainmaker
61,229
Paul Dunn
Tucson, AZ
former orginator

They do not get a 1099, but Google Mortgage Forgiveness Debt Relief Act for answers on the question of the 1099.  Debt forgiven is exactly the same as in a short sale.  It isn't transfered or sold to the government or the IRS.  If a short refi (or short sale) happens, the debt is written off by the current lender.

Jul 11, 2008 03:24 AM #2
Rainer
173,075
Fred Chamberlin
Guild Mortgage Co - Oak Harbor WA - Oak Harbor, WA
Oak Harbor/Whidbeynulls, #1 Experienced FHA Mortgage Consultant

I wasn't aware you could do a short "sale" refinance. Sounds like an excellent option. Thanks for the info.

Jul 11, 2008 08:25 AM #3
Anonymous
Sue Lynn Anderson

Hi Paul,

What happens to the 2nd mortgages in a FHA Secure short refinance in this scenario:

Value of the home: $400,000

1st: $387,000

2nd $97,000  (whether they used funds to purchase, improve or take cash out)

New FHA Secure loan: $388,000 (97% of $400,000)

For a borrower with good credit, what does the mortgage insurance add to the payment and is the interest rate for a 30 YR fixed higher than a regular FHA loan?

If the borrower is not behind in the payment, but their arm is set to reset within 18 months, will the lender go for it or make the borrower wait until closer to the reset date?

Thanks!

Aug 25, 2008 03:53 PM #4
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Rainmaker
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Paul Dunn

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