FHA Extends Refinance Program for Underwater Borrowers
The FHA announced this extension in FHA mortgagee letter 2014-23 describes the original “FHA Refinance of Borrowers in Negative Equity Positions” program as a way to give, “a greater number of responsible borrowers an opportunity to remain in their homes.”
The program helps, “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.”
Two years after the original launch of the negative equity refinanced program, FHA Mortgagee Letter 2012-05 was issued, amending the program to include a Short Refinance Trial Payment Plan.
This change “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.”
The new FHA Mortgagee Letter issued in late 2014 by 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.”
Borrowers should discuss their needs with a lender or contact the FHA directly for information on program eligibility.
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