Continued Post on the SHORT REFINANCE program:
We’ve all watched as program after program rolls out of Washington for those hapless homeowners who can’t make their mortgage payments. And we’ve all seen or heard stories about people who simply stop paying their mortgage and walk away from their obligations. Where’s the help for the myriad homeowners who continue making payments on a mortgage that exceeds their home’s value? It’s finally here – if you qualify.
You might qualify if:
1. You’re underwater: you have negative equity;
2. You’re current on the mortgage to be refinanced;
3. You occupy the home as your primary residence – although if it’s a rental property, it could be up to four units;
4. You can qualify for the new loan under standard FHA underwriting requirements and have a FICO credit score of at least 500;
5. The existing loan to be refinanced isn’t an FHA-insured loan.
As I mentioned above, however, even if you meet all these criteria, both the bank that owns the mortgage and the company that services it will have to agree to reduce the loan until it’s no more than 97.75 percent of the home’s value. They also have to reduce it by at least 10 percent.
What you should do…
If you think you’re eligible, first read a more complete description of the qualifying criteria in the HUD document that explains the program in more detail. Then contact the company you make your mortgage payments to monthly (your mortgage servicing company) and ask them about the Short Refinance Program. If they’re participating, and say you’re potentially eligible, they should be able to guide you to the proper paperwork. If they haven’t heard of the program, refer them to this document, issued by HUD to explain the program to lenders.
How much you’ll pay
Refinancing through this program will entail the same closing costs, etc. as you’d pay to take out any FHA mortgage – keep in mind that FHA mortgages require paying mortgage insurance.
Beware your credit
Anytime a lender forgives a loan or part of a loan, that could show up as a negative on your credit history.
If you have a second mortgage
You can still qualify for the program with a first and second mortgage, the lender on the second mortgage must also agree to the refinance, and when it’s complete the combined mortgage debt can’t be greater than 115% of the property’s current value. The government will make some incentive payments for second mortgage lenders that might encourage them to reduce principal.
What about Fannie Mae and Freddie Mac loans?
It is noted that loans owned by Fannie Mae or Freddie Mac wouldn’t qualify for this program at this time. That’s because these two quasi-governmental agencies have thus far had policies in place that precluded them for forgiving principal. However, it now seems they’re at least considering it – check out this very recent article from the Wall Street Journal.
Bottom line? It’s nice the know the government is finally tossing a line to people who’ve kept paying their mortgages in trying times, even while underwater. The fact that it’s voluntary for lenders may keep some otherwise deserving homeowners from being brought back to the surface, but with every rescue, the water gets a little nicer for all of us.
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