News of the FHA short refinance program has reached many underwater homeowners and, as a result, homeowners who owe more on their home than their home is worth are beginning to look more closely at this underwater mortgage assistance plan to see if they qualify. While this FHA short refinance program may offer some homeowners the opportunity to refinance their underwater mortgage and receive a mortgage principal reduction, there are concerns over who may qualify and whether the program will be successful.
Homeowners who are current on their mortgage payments and owe more than their home is worth are the targets of this FHA program. It’s hoped that homeowners who have seen a loss in their home’s value will be able to use this refinancing opportunity as a way to gain a more affordable monthly mortgage payment but there are some restrictions on who may qualify.
Again, homeowners who have been current on their mortgage payments may qualify for this program, but they must also meet certain FHA guidelines, like having a minimum credit score of 500 and an income that will allow them to meet their mortgage payments. While many feel that homeowners who are still current on their mortgage payments can meet these standards, there is concern over whether mortgage servicers will work with these homeowners to allow them a refinancing opportunity.
Mortgage servicers must be willing to write down mortgage principal values by at least 10%, which obviously means they will take a loss, and in cases where a second lien is in place, a homeowner may not have a combined mortgage debt that is greater than 115% of their property’s value. Yet, if a homeowner’s mortgage debt exceeds this percentage, then servicers must agree to the refinance and will have to reduce the homeowner’s principal even further.
While, again, homeowners will have to work with their mortgage servicer or servicers in order to proceed through this FHA refinancing opportunity, there are concerns among many homeowners and analysts as to whether financial institutions will be willing to offer principal reductions, take losses on these homes, and allow refinancing to take place to an FHA-backed home loan if a homeowner is still current on their monthly mortgage payments.
The FHA underwater mortgage refinancing and principal reduction opportunity stands to benefit numerous homeowners who have seen the value of their home drop over the past months. However, with the housing market still struggling to recover, there is worry over whether mortgage servicers will be willing or able to offer these principal reductions for certain homeowners who are able to make their mortgage payments at the present time.