Underwater But Not Late?


FHA is launching a new refinance program next month that will target homeowners who are ?underwater? on their mortgages (meaning they owe more than the house is worth on the open market) but have yet to miss a monthly payment.

Dubbed the Federal Housing Authority Short Refinance option the program is aimed at helping out homeowners who have seen large declines in their home values due to the current real estate markets across the country.

Starting on September 7, FHA will offer the opportunity to refinance eligible non-FHA borrowers who are current on their existing mortgage. Their current lenders must agree to write off at least 10% of the unpaid balance of the first mortgage.

The borrowers must have a minimum credit score of 500 and must live in the home as a primary residence.

The refinanced first mortgage must have a maximum loan-to-value of 97.75%.

However, many markets across the country have declined more than 10%, so lenders may need to forgive even more than the 10% in order to make the program work.

Another criticism is the question of why banks may be willing to negotiate with any borrower who is completely current on their mortgage. Banks are usually more willing to work with borrowers who are late with their payments. If the borrower does not appear to be a foreclosure risk, the banks have usually not been willing to negotiate with them.

However, there is potential to help many homeowners if the program works.

For more information go to www.hud.gov