The government has attempted to help out homeowners struggling with underwater mortgages in the past, but so far, there hasn’t been much success with the FHASecure or Hope for Homeowners programs. Though the number of underwater mortgages in the U.S. has decreased since March, it’s been due to an increase in foreclosures, not home values. That’s why a new option has just been set in motion, known as the FHA Short Refinance program.
Homeowners Walking Away from Underwater Mortgages
The increasing number of foreclosures is demonstrative of the hopelessness current homeowners with underwater mortgages are facing. A recent survey conducted by the Pew Research Center found that 36 percent of homeowners believe it’s okay to stop making payments on a mortgage and walk away from their home if the circumstances call for it.
That’s just what many are doing. This rising trend may be what has contributed to the creation of the FHA Short Refinance option, as many people would rather give up their home than go bankrupt trying to pay hundreds of thousands more than it’s worth. That’s bad for bankers and borrowers.
So What is the FHA Short Refinance Program?
Until now, homeowners could only refinance an underwater mortgage if their loan was backed by the FHA. Now, this new program lets non-FHA borrowers refinance to an FHA-backed mortgage, worth no more than 97.75 percent of their home’s value, at today’s historically low mortgage rates.
Of course, when it comes to an underwater mortgage refinance, things are never simple. In addition to a list of qualifications that must be met, including an up-to-date payment history and credit score above 500, the homeowner’s lender must first be willing to write off at least 10 percent of the principal balance and the total debt associated with the home can’t exceed 115 percent of its value.
Short Refinance Program FAQ
Earlier this month, the Wall Street Journal posted an in-depth Q & A regarding the new program. It provides an easy to understand breakdown of the information anyone interested in refinancing should know. However, while informative, you may be disappointed by all of the restrictions and costs detailed in the FAQ, including the exclusion of second homes and investment properties as well as the transaction fees and mortgage insurance you’ll be paying.
Success of New Program is Uncertain
One of the biggest criticisms of the previous underwater mortgage help options was that they only applied to a small fraction of the overall underwater programs. This is the case with the short refi option as well. The program doesn’t address the above mentioned “strategic defaulters” or those who have fallen behind on their payments.
The Obama Administration estimates between 500,000 and 1.5 million homeowners will find relief with an FHA Short Refinance. However, Credit Karma explains it was projected that the last government-backed housing relief program would help 3 to 4 million homeowners when less than 500,00 have been so far.
Whether or not the new FHA Short Refinance program is the key to solving the underwater mortgage crisis is yet to be seen. If you think this option could help you regain control over your mortgage payments, visit the U.S. Department of Housing and Urban Development website or contact your lender for more information.
I doubt this program will help much since fannie mae and freddie mac loans arent allowed to participate in this program. But it is a step in the right direction.
This program is virtually useless. It’s voluntary on the part of the lien holding banks. And they just aren’t willing to participate. They got their bailout, why should the banks bailout any homeowner when it’s going to cost them money? I called my bank and ask about it. No way will they participate.
Has anyone had any success trying to negotiate this? Bank of America isn’t willing to participate.
Wells Fargo told me that they won’t participate. Ugh! Has anyone had success with this?
When will somethng be available for the borrower that has kept up payments inspite of the underwater property? And when will they help the 2nd home owner who is suffering the same none the less. We partnered w/ another couple on a very modest resort condo 4 years ago splitting everthing 50/50. It has been a great situation which both families have enjoyed. 2 years ago he lost his income. Last month he informed he could no longer make his payments. Our options seem pretty limited. We would like to keep but need some intrest rate / princible help. The big banks don’t seem to have any interest in assistance.
Very frustrating.