November 18, 2014
The FHA has announced an extension to a program started to help borrowers who are underwater on their mortgages.
FHA mortgagee letter 2014-23 describes the original “FHA Refinance of Borrowers in Negative Equity Positions” program started in 2010 which, according to the FHA/HUD official site, “provided enhancements to the Federal Housing Administration (FHA) refinance program that gave a greater number of responsible borrowers an opportunity to remain in their homes.”
These FHA enhancements were designed, “to maintain homeownership by
providing borrowers, who owe more on their mortgage than the value of their home, opportunities to refinance into an affordable FHA loan. This opportunity allowed borrowers to qualify for an FHA refinance loan provided that the lender or investor wrote off the unpaid principal balance of the original first lien mortgage by at least 10 percent.”
This program was amended in 2012 in Mortgagee Letter 2012-05 to include a Short Refinance Trial Payment Plan, which “allowed first lien holders to extinguish second lien debt, expanded the allowable debt-to-income ratios on manually underwritten loans and extended the expiration date of the program to December 31, 2014.”
With that expiration date looming, the FHA has taken action to extend the program. According to the new FHA Mortgagee Letter, the FHA, “extends the expiration date of the program to December 31, 2016. The Mortgagee Letter also reiterates the permitted use of proceeds from government entities and instrumentalities of government to extinguish a portion of the negative equity. All other provisions of MLs 2010-23 and 2012-05 shall remain in effect.”
The mortgagee letter also reiterates FHA policy for this program, stating, “One eligibility requirement of the Short Refinance program is that the existing first lien-holder must write off at least ten percent (10%) of the unpaid principal balance of the loan being refinanced. If further reduction to the unpaid principal balance is required to bring the Loan-to-Value (LTV) ratio of the new refinanced loan down to 97.75%, FHA allows proceeds from government entities and instrumentalities of government to be used.”
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Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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