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FHA Short Refinance

FHA Short Refinance is aimed at providing relief to the underwater borrowers and requires the participation of lenders who could voluntarily write off a percentage of unpaid principal. The program, which is also called FHA Short Refi, has been announced recently by the HUD Department of Housing and Urban Development and its details can be found in the mortgagee letter 2010-23. As the option to participate in the program is left open to banks and other lending institutions, one should contact the servicing lender of their mortgage to see if they can get the benefits.

FHA Short Refinance Program



HUD has outlined the basic eligibility requirements for the borrowers who want to avail the opportunity. The homeowner must be in a negative equity position, that is, they owe more than their home is worth. The property must be a 1-to-4 unit structure and is owner occupied. The existing loan must not be an FHA-insured loan and the refinanced FHA-insured mortgage must not have an LTV of more than 97.75 percent. The minimum credit score requirement to qualify for the FHA short refinance program is 500.

Even if a homeowner meets all the eligibility requirements mentioned above, the program will not work unless the first-lien holder agrees to write off at least 10 percent of the unpaid principal. The objective is to bring down the combined loan-to-value ratio at 115 percent. Incentives are offered by HUD to existing second lien holders who are willing to participate in full or partial extinguishment of the liens.

FHA Short Refinance Participating Lenders



For a borrower, the cost to participate in the program may include the fees associated with a typical refinancing situation. In addition to that, they will have to pay the insurance premiums that are typical with any FHA-insured mortgage. The Lenders on the other hand may have to lose a significant portion of the principal amount. In some cases, the percentage of amount to be reduced in order to bring down the LTV to 97.75 percent would be much more than 10 percent.

It seems that big lenders like Bank of America, Wells Fargo and Chase have not responded well to the program. People trying to find a plan that can bring relief to them under the new HUD guidelines are often disappointed as these banks have not yet come up with anything to that effect. As the participation is voluntary, many lenders choose not to participate and some are even unaware of the existence of FHA short refi program.

Nevertheless, you should keep trying to contact the loss mitigation departments of these banks to get any updates on this aspect from the officials in 2011. Browse our website to find contact details of the loss mitigation department of Wells Fargo, Chase, Bank of America and many other banks.

Website: www.hud.gov





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