Federal Housing Administration Short Refinance Program–FHA Underwater Refinancing Plan May Prevent Foreclosure

Underwater homeowners may be able to gain some form of assistance from a new underwater mortgage program from the Federal Housing Administration. This new FHA-short refinance plan is hoped to help non-FHA underwater borrowers get an FHA-backed mortgage in cases where they owe more on their home than their home is worth.

Ideally, this program will work by dealing with a homeowner’s primary lender and allowing the homeowner to obtain a more affordable FHA mortgage. One problem that many foresee with this new FHA refinancing program is that mortgage servicers of the primary home loan will have to agree to write off 10% of the principal of the underwater mortgage. Also, this may become more difficult if a second lien is associated with this underwater home, but there are those who feel that this underwater refinancing opportunity may help thousands of homeowners who are facing a difficult mortgage situation.

There is concern over the fact that mortgage servicers may be unwilling to help homeowners through this FHA-short refinance opportunity since homeowners who qualify for this plan will be those who are current on their mortgage payments. Some analysts have a very low expectation for this program as they believe mortgage servicers will be unwilling to offer a principal reduction to a homeowner who can still make their underwater mortgage payment.

Yet, in cases where homeowners are struggling this FHA shore refinance option, or similar underwater refinancing opportunities like those from the Home Affordable Refinance Program, may help homeowners who are struggling under the weight of their underwater mortgage obligation. While there have been offers by lenders to help some homeowners who have either missed payments on their underwater mortgage or who are in danger of defaulting, it is hoped that servicers will also work with homeowners through these programs in order to prevent any mortgage difficulties down the road that could create financial problems for homeowners who owe more on their home than it is worth.