Take advantage of Refinancing Underwater Mortgages with the FHA Short Refi Program

The FHA Short Refinance loan was created to assist distressed but responsible homeowners who owe more on their home loan than their house is worth because their local markets saw significant declines in property values. The FHA short refinance program will kick off on September 7th. FHA rates remain at record lows, so this should be a very popular loan program as approximately 35% of homeowners in the U.S. are said to have an underwater mortgage.

FHA will offer this mortgage relief opportunity to specific non-FHA borrowers who are current on their existing mortgage and whose lenders agree to write off at least 10 % of the unpaid balance of the first mortgage. The new mortgages would then be FHA-insured.  The borrower must have a credit score of at least 500 and the house must be the homeowner’s primary residence.

To be eligible for FHA’s Short Refinance program, a homeowner must meet the following criteria:

• Borrower must have a mortgage underwater (negative equity as mortgage is greater than property value)

• Homeowners must be current on their mortgage

• Borrower must live in their home (primary residence)

• Borrower must have a minimum 500 credit score

• Homeowner must have an existing non-FHA loan

• Existing mortgage lender must write down at least 10% of the unpaid balance

• Refinance the new FHA mortgage to a loan-to-value ratio of no more than 97.75 %.

In addition, the first mortgage being refinanced must have a maximum loan-to-value of 97.75 %.  Some FHA lenders are exciting with the government’s aggressive approach to help homeowners find a solution for refinancing underwater mortgage loans. Banks are more willing to negotiate with borrowers who delinquent on their first or second mortgage.  Many FHA lenders will not consider writing down loan balances or extending loan modifications unless homeowner can demonstrate that they can afford their home.  FHA Commissioner David Stevens said the government is “throwing a lifeline” to families, giving homeowners and lenders another tool to battle the problem of negative equity facing borrowers current on their mortgage.

HUD, Fannie Mae and Freddie Mac have come together to create targeted loan relief to borrowers who financial hardships, like a loss of home equity, employment issues and even bad credit.  FHA loan requirements have tightened somewhat in the last few years, but there are still significant opportunities for homeowners to receive financial assistance with FHA home refinancing.  FHA confirmed a new program, the FHA short refinance and it will go live on September 7^th.  This refinance program will actually enable homeowners who are underwater to refinance into a lower mortgage balance. To qualify, homeowners must be current on a non-FHA loan to refinance into an FHA mortgage when their lender agrees to write off at least 10% of their principal.

US Government Continues to Fund FHA Mortgage Relief Programs Listed below are the unique conventional and FHA loan programs created to provide mortgage relief:
	FHA Secure Hope for Homeowners Home Affordable Refinance Program Home Affordable Modification Program Second Mortgage Modification Program FHA Short Refinance

US Government Continues to Fund FHA Mortgage Relief Programs

Today FHA mortgage rates have fallen to record levels.  Qualified borrowers can lock a 30-year fixed loan with a rate of 4.125% and the 15-year loan features a rate 3.875%. Don’t miss out on these once in a lifetime home financing opportunities.

Is FHA Home Financing Getting Better?

FHA now insures about 5.4 million 1-family mortgage loans at a combined value of $675 billion, making it the world’s largest insurer of mortgage loans.  HUD continues to offer FHA refinance and purchase loans in all 50 states.

Together with Fannie and Freddie, the FHA backs 90% of new American home loans. FHA mortgage programs have received a lot of criticism recently, because of the depleted FHA loan reserves and increased foreclosures but the agency was the only financing company that stepped up to fill the void when the subprime mortgage market crashed in 2006.  FHA again stepped up in 2008 when conventional mortgage lenders and private insurers were squeezed by the credit crunch.  FHA lenders remained focuse on improving the housing markets by providing better FHA home loans in 2011.

HUD announced that The Federal Housing Administration plans to hike the annual fees it charges new borrowers starting September 7th, which would add about $300 million a month to the agency’s eroding cash reserves.  The insurance premiums are capped at 0.55 % of the value of a loan. Earlier this week, the Senate voted to raise the cap to 1.5 %. President Obama is expected to sign the measure this month.  But the FHA does not plan to raise the fees to the maximum level allowed, and it estimates that borrowers would pay about $38 more on average each month, agency officials said. The increase would not apply to current FHA loan holders. HUD said that raising the FHA lending fees will give the agency a much needed cash injection.  The fee structure revision only aligns its fee structure with that of private mortgage insurers, which were crowded out of the market as the popularity of FHA loan program increased.

Increasing the premiums is a quick way for the agency to elevate its loan reserves that have been dwindling down from the foreclosures and loan defaults. In the past, FHA has avoided raising loan fees because they feared that they were closing the door of opportunity for qualified borrowers.  In addition, many economists had warned that drastic changes to home financing would likely hinder recovery of the housing sector nationally. FHA already increased the upfront fees it charges borrowers earlier this year. Those FHA mortgage lending fees helped keep the agency cash-positive this fiscal year, with a net cash flow of $446 million as of June 30th.  

FHA Commissioner David H. Stevens said, “The premium is another important measure to help protect the FHA mortgage program.”  FHA asked Congress for authority to increase the annual fees.  The loan fee increase was included in a broad FHA loan reform bill that passed the House in June. But when the Senate did not act on it, the FHA pushed for a free-standing bill that would allow for passage of the premium increase before Congress began its August recess.

Will a Minimum Credit Score Requirement Hinder the Ability for Americans to Refinance with an FHA Mortgage?

Over the years, FHA credit has been a great alternative to subprime lending because FHA would consider borrowers with low credit scores if they had compensating factors.  These types of FHA loans were manually underwritten and in most cases would be required to have cash reserves equal to at least one monthly mortgage payment.  Rumor has it that HUD is considering reducing the ability for FHA refinance opportunities if the mortgage balance is greater than the home values.

HUD is set to roll out a few new policies that could significantly affect the way some FHA lenders originate mortgages nationally.  FHA invited public comment on several of these policy changes in an effort to bolster FHA loan reserves.   According to FHA Commissioner David Stevens, “Striking the right balance between managing the FHA’s risk, continuing to provide access to underserved communities, and supporting the nation’s economic recovery is critically important ” to FHA’s success.

With FHA rates still be recorded at all-time lows it’s hard to understand why low fixed mortgage payments are not enough of a motivation for first time homebuyers.  Yet sluggish reports continue to be reported weekly with low FHA purchase loan activity. The housing sector continues to wait to see if the home buying market can rebound since the expiration of the first-time homebuyer tax credit.  The FHA has remained aggressive with the FHA loan guidelines as borrowers still only need to come up with 3.5% of the down-payment.

The FHA has promised to lower allowable seller concessions (the percentage sellers can take from the sales price of a home to fund closing costs).  FHA will reduce seller concessions from 6% to 3%. According to an announcement in January, the current level of 6% exposes the FHA to excess risk by creating incentives for appraisers to increase the value of these homes. The change will take place in “early summer,” according to the FHA, but a spokesperson said no specific date has been set.  The FHA closing costs include fees for origination, attorneys, appraisal and inspections, title search, title insurance, credit reports, and more. FHA down payment assistance is not included as a closing cost.

Fixed FHA Rates starting at 4%

To figure out the average interest rate, we consider the FHA mortgage rates on Monday through Wednesday of each week from FHA lenders around the country. FHA rates often fluctuate significantly, even within a given day. FHA rates on five-year adjustable-rate mortgages averaged 3.76 %, down from 3.79 % a week earlier. Rates on one-year adjustable-rate home loans dropped to an average of 3.64 % from 3.70 %. The FHA mortgage rates do not include add-on fees known as points.

FHA Cash Refinancing FHA Streamline Refinance FHA for Home Improvements

Take advantage of FHA’s flexible credit guidelines and streamline loan process and get approved for an FHA refinance today.  As an approved FHA lender, we have the volume to justify the lowest FHA rates online.

In addition to earlier steps taken to manage its risks and to boost reserves, FHA is proposing to update the combination of credit and down payment requirements for new borrowers; reduce seller concessions from six to three percent; and tighten underwriting standards for manually underwritten FHA mortgage loans.  “These are the latest in a series of changes to allow the FHA to manage its risk better while continuing to support the nation’s housing recovery,” said Stevens.”

FHA guidelines could be tightened more for purchase and FHA refinance programs.

1. Update the combination of credit and down payment requirements for new borrowers. New borrowers seeking FHA home financing will be required to have a minimum FICO score of 580 to qualify for FHA’s flagship 3.5 percent down payment program. New borrowers with credit scores of less than a 580 will be required to make a cash investment of at least 10%. Borrowers with credit scores of less than 500 will no longer qualify for an FHA-insured mortgage.

2. Reduce allowable seller concessions from six to three percent. Allowing sellers to contribute up to six percent of the home’s sales price to offset a buyer’s costs exposes the FHA to excess risk by potentially driving up the cost of the home beyond its appraised value. Reducing seller concessions to 3% will bring FHA into conformity with industry standards.

3. Tighten underwriting standards for manually underwritten FHA home loans. When using compensating factors in the underwriting process, FHA lenders will be required to consider those factors which are the best predictive indicators of loan performance, such as the borrower’s credit history, loan-to-value (LTV) percentage, debt-to income ratio, and cash reserves.

Qualifying for a FHA Loan Modification

As you may already know, qualifying for a FHA modification plan is different than a FHA refinance qualification.  FHA refinance guidelines allow borrowers to qualify for a rate an term refinance with a debt to income ratio up to 45% in most cases.  (Max DTI ranges 36% – 45%  for FHA refinancing)   Whereas the debt-to-income ratio on a FHA loan modification seems to be between 70 and 100%.  Some lenders will lower the payment automatically to a 38% debt to income ratio, so for some borrowers their mortgage payment is reduced significantly. 

FHA Refinance Guidelines Limit LTV to 96.5%

The loan to value requirements are much different as well.  FHA refinance guidelines enable borrowers to refinance up to 85% on cash out loans and 96.5% on rate and term refinancing.  The FHA loan modification agreements seem to be extended to borrowers who are underwater with loan to value levels that exceed 100%.  (ie. borrowers owes $350,000 on mortgage but home is valued at $300,000).  

The other important underwriting issue with FHA home refinancing is payment history.  FHA refinance guidelines typically require no late payments on the mortgage for the last 12 months.  However, on a case by case basis, underwriters may approve a borrower for FHA refinancing with one 30-day late payment if they have compensating factors.  The FHA loan modification is usually approved to borrowers who are 30-days late or more.  It’s tricky because if you asked the lenders if being late on the mortgage was required for a FHA modification approval they would say “No.”  However, we see a pattern of FHA loan modification agreements being extended to distressed borrowers who are behind on their mortgage payments. 

Both refinance and loan modification solutions continue to help millions of borrowers across the country achieve FHA mortgage relief.  If you are experiencing some financial hardships that are making it difficult for you to afford your mortgage payment, it is strongly recommended that you seeking financial consultation and move forward with one of these loan relief solutions.

It is no secret that the Federal Housing Administration has made significant efforts to make sure that qualified borrowers really want the FHA streamline refinance loan.  Recently, FHA enacted big changes for the FHA streamline guidelines.  Now borrowers that want to lower their interest rate with the FHA streamline must pay for closing costs out of their pocket.  FHA does not allow borrowers to finance any closing costs when streamline refinancing.  That means in most cases that FHA borrowers are covering the $2,000 to $3,000 in lending costs from their savings. 

Did FHA go too far in tightening the Streamline Guidelines? 

The thinking behind the streamline tightening is that by requiring borrowers to pay the closing costs out of their pocket that they will think twice before refinancing and loan defaults will decrease.  FHA streamlines have never allowed cash out and they have not been a problem for defaults and foreclosures.  With depreciating values nationwide it would appear that FHA is protecting themselves and borrowers from increased mortgage balances that would come from a borrower financing the lender fees and closing costs into their FHA streamline loan.  For example, before the streamline guideline change if a borrower had $300,000 mortgage balance, it would be $303,000 after the refinance.  If a borrower refinanced once a year, after a while the balance would be $320,000 and with declining values, this increases the risk as more homeowners would be underwater with their mortgages.

The No Cost FHA Streamline Solution

There are approved FHA lenders that are offering no cost mortgage refinance opportunities for a select group of borrowers.  If you have good income and high credit scores above 700, there is a good possibility that you may qualify for a no cost streamline refinance in which the lender is paying for the closing costs on their end.  This way you do not have to come out of pocket to cover the closing costs and your mortgage balance would not go up because you are not financing fees that FHA will not allow anymore anyways.  Qualifying for no cost FHA streamline loans will take some shopping online to find a credible FHA lender that offers these unique refinancing incentives, but clearly it will be worth it financially in the long run.