HUD 4000.1 is the FHA single family home loan rule book. Whether you are purchasing a suburban home, a condo unit, or a mobile home with an FHA mortgage, the rules in HUD 4000.1 pertain to your FHA loan transaction. This set of rules also includes guidance on FHA refinancing loans including a program known as an FHA short refi loan, also called “Refinance of Borrowers in Negative Equity Positions Program”.
This program, according to HUD 4000.1, “allows the Mortgagee to refinance a non FHA-insured Mortgage in which the Borrower is in a negative equity position”. That’s commonly known as being “underwater” on a home loan.
An FHA short refi requires the lender to “write off at least 10 percent of the unpaid principal balance”.
The borrower must be in a “negative equity position” and according to the FHA official site, “may not have an existing FHA- insured Mortgage. The Borrower must be current for the month due or have successfully completed a three month trial payment plan on the existing Mortgage to be refinanced.”
A short refi guaranteed by the FHA cannot feature”Premium Pricing to pay off existing debt obligations to qualify the Borrower for the new Mortgage” and the “FHA-insured first Mortgage must have a Loan-to-Value (LTV) ratio of no more than 97.75 percent and any new or re-subordinated Mortgages must not result in a Combined Loan-to-Value (CLTV) ratio greater than 115 percent”.
This program has been around for some time now, but it’s important to know that as the rules are defined in HUD 4000.1 at the time of this writing, FHA short refi loans are only available as described here for “case numbers assigned on or before December 31, 2016”.
It’s entirely possible that the FHA/HUD may issue a mortgagee letter extending the program if it is to be continued for case numbers assigned in 2017, but as of the time of this writing such guidance does not seem to be available from the FHA/HUD official site.
Keeping in mind that the cutoff date as the rules are currently defined, borrowers who need information on future eligibility or current transactions featuring a short refi should discuss their specific circumstances with a loan officer as soon as possible.