Earlier this week on September 7th, 2010 the Obama administration launched a new “short refinance” mortgage assistance program. This program targets homeowners that are current on their mortgage and underwater. Essentially, these homeowners owe more than their property’s worth.
According to HUD.gov:
“Starting September 7, 2010, the Federal Housing Administration (FHA) will offer certain ‘underwater’ non-FHA borrowers who are current on their existing mortgage and whose lenders agree to write off at least ten percent of the unpaid principal balance of the first mortgage, the opportunity to qualify for a new FHA-insured mortgage.”
“We’re throwing a life line out to those families who are current on their mortgage and are experiencing financial hardships because property values in their community have declined,” said FHA Commissioner David H. Stevens. “This is another tool to help overcome the negative equity problem facing many responsible homeowners who are looking to refinance into a safer, more secure mortgage product.”
The “short refinance” program reduces mortgage balances for homeowners. Yes, that’s right. Through the program lenders can reduce the amount you owe on your home. The new mortgage is written down to less than the current value of the property and backed by the government in a Federal Housing Administration (FHA) loan.
A few key highlights of the new “short refinance” program’s eligibility requirements*:
- Homeowner must be current on mortgage
- Homeowner must owe more than their property is worth
- Homeowner must meet FHA underwriting requirements and have a credit score of 500 or above
- Homeowners must live in the property as their primary residence
- The current mortgage must not be an FHA loan
* Click here for detailed program information from HUD.gov.
If you’re interested in applying for the program, contact your lender.
Read the Wall Street Journal’s article Government to Deploy Broader Mortgage Aid for more details about the program.
What are your thoughts on the new Obama administration “short refinance” program? Do you think it will help or hurt the real estate market?
Great info submitted. Thanks, Im going to see if my lender participates.
Thanks for reading the Gain Money Control blog Alphonso! I’m glad you found the information useful. 🙂
I think it will help in the short term. But, people need to learn to spend no more than they can afford. This new assistance program will say to these people “it is okay, go ahead and overspend, we will help you”.
Thanks for sharing your thoughts Elba! Hopefully, the new regulations in the mortgage industry will help prevent people from overspending since we’ve said goodbye to stated income and other loose mortgage approval (interest only loans approved for interest payment portion only) practices that contributed to where we are today. Today there are stricter guidelines that lenders must follow in place (e.g. documentation required).
Great point on living below your means! Spending smarter is the key to building and keeping wealth.
Hey Kembala,,
thanks for the post. I think this will definitely help, although I wish it had come sooner. I have too many clients that were struggling to pay their mortgage for the past two years of the recession, who then fell into default. These are not people who bit off more house than they could afford, but those who experienced job loss or significantly reduced income due to the economy. Too bad this program cannot help those already in foreclosure.
Moneque, thanks for sharing your experience with us! I agree with you, unemployment and being forced to live on less income have largely contributed to many home foreclosures in the marketplace. I appreciate you sharing your perspective on this issue.
This program, while important in trying to prevent lagging economic growth, still doesn’t address the root cause issue.
I believe the gov’t should have made these banks sell the distressed assets (millions of foreclosed homes) at market value when they received the TARP money.
This would have accelerated the creation of a value floor in the housing market and would eventually allow for the industry to recover at a much higher growth rate while helping propel the economy forward. With new foreclosures on the rise, it will make recovery take longer because the market will be flooded with even more devalued assets.
There is culpability on both sides of the mortgage aisle; the person who over bought and the predatory lender who closed the deal. Unfortunately, people who bought wisely and lost their jobs due to the economy or those who are financially stable have bore the brunt of it during the Great…
That why it’s the private sector’s turn, specifically the banks to bear these losses and help mainstreet recover by selling these homes dramatically below book value on their dime (not ours = Federal gov’t) instead of collectings billions in profits each quarter.
Mike – When the TARP money was released we were in a spiral downward, so I don’t know how many people would have been in the position to buy distressed assets from the banks. However, I don’t think the answer is foreclosing on a property worth $200k and then auctioning that same property off for $3k either. A loss is a loss and what about the people?
I understand what you’re saying about a value floor, because your proposition proposes taking the loss earlier vs. holding onto distressed assets and waiting for a government bailout. I’m in complete agreement with you on that one, especially when we continue to see the banks quarterly profits rising.
This just in from TheStreet.com – Foreclosures Rise, Bank Repos at New High.
Mike, thanks for taking the time to share your thoughts with us!