FHA Short Refinance Program Signed Into Effect This Week
09/09/2010 The FHA announced a new short refinance program designed to provide underwater homeowners an opportunity to refinance and take advantage of current mortgage rates. This new refinance program allows borrowers who are making consistent payments but whose homes are valued below the total remaining loan amount to take on loans with newer, better terms. Loans that are currently backed by the FHA are disqualified.
The requirements for this program are similar to the requirements for other FHA mortgage programs. The home that is refinance must be the borrower's primary residence. Borrowers will have to pay for mortgage insurance and minimal closing costs. A minimum credit score of 500 is required. An added requirement is that borrowers must be current on their mortgage payments.
The FHA short refinance is voluntary, however. Banks and lenders must agree to write off at least 10% of the loan balance as a primary requirement of the program. If a lender is unwilling to forgive this portion of the debt, the refinance cannot move forward. This will likely prevent a high number of borrowers from utilizing the program, as banks won't want to accept a loss.
The FHA short refinance program may create an opportunity for underwater homeowners to obtain new mortgages at low rates. Time will tell whether or not financial institutions will agree to the terms.
