An option that homeowners with an underwater mortgage have been exploring, as a way to find a more affordable payment on their home loan, is the FHA short refinance program. Homeowners who owe more on their home than their home is worth have been seeking principal reduction plans and underwater refinancing opportunities, but have been unable to find assistance in many cases.
There are some financial institutions that have been reported to offer principal forgiveness programs if homeowners continue making their mortgage payments despite being underwater, but principal forgiveness is not something that has been widely used by numerous financial institutions. However, under the FHA underwater refinance plan, homeowners can refinance to an FHA-backed home loan, and receive a principal reduction on their mortgage.
This underwater refinancing and mortgage principal reduction assistance plan could go a long way in helping homeowners get a more affordable payment on their underwater home loan. However, there are concerns over the fact that a mortgage servicer must agree to forgive a certain percentage of the homeowner’s principal in the case where a homeowner has lost value in their home.
Fannie Mae and Freddie Mac have a similar underwater refinancing program that has allowed some homeowners to refinance their underwater mortgage to a more affordable rate or payment plan. It’s understandable that homeowners who are facing a situation where they have lost value in their home and owe more on their mortgage than their home is actually worth are frustrated, but these refinancing opportunities are hoped to stop homeowners from walking away from their mortgage obligation.
Strategic defaulting has become a problem and can be detrimental to a homeowner’s credit score, but some homeowners are willing to take the hit to their credit rather than stay in an underwater home. Yet, these refinancing opportunities from the FHA or the Home Affordable Refinance Program are believed to be beneficial for underwater homeowners who may either have difficulty paying their mortgage or who simply are looking for affordable mortgage solutions to their underwater predicament.