Underwater principle reductions have been a topic which have been debated over the past months, but recently the issue has arisen again as Fannie Mae and Freddie Mac are being prompted to join the effort for servicers to write down mortgage principles and turn over these home loans to the FHA’s short refinance program. There are those who feel that more financial institutions would be willing to participate in this particular underwater refinancing and principal reduction plan if Fannie and Freddie participated in this program, since there have been relatively few success stories within the FHA’s initiative.
Yet, there are disagreements over this particular underwater mortgage assistance program as, some feel Fannie Mae and Freddie Mac will not participate in the FHA’s short refinance program, which again, could cause continued low participation numbers from other financial institutions. However, one of the main objections to the FHA’s short refinance program are simply the qualifications as, according to program guidelines, this option for underwater refinancing and principal reduction is only available to homeowners who are current on their mortgage.
There are those who make the argument that despite the fact homeowners are current on their home loan, underwater mortgages and the need for sustainable affordability options could cause these homeowners who may currently qualify for the FHA short refinance program to slip into delinquency if continued mortgage difficulties persist. Also, homeowners in some cases have had no trouble simply walking away from their mortgage obligation when an underwater home loan situation is present, and it’s hoped that homeowners who are current on their mortgage will be swayed from taking these actions if more affordability can be offered.
However, many of the objections by financial institutions to participate in the FHA short refinance initiative have centered around the fact that homeowners who are current on their home loan, despite being in an underwater situation, are not in danger of default in most cases and, as a result, servicers have little to no incentive for reducing a homeowner’s principal and turning the loan over to the FHA.
There are some refinancing opportunities available through plans like the Home Affordable Refinance Program, but arguments in favor of the FHA short refinance program, once again, point out that not only is there affordability that can come from the chance to refinance to a more affordable mortgage agreement but homeowners would welcome the principle reduction as well. Understandably, homeowners in a negative equity situation have called for printable reductions for numerous reasons, but servicers who are being asked to participate in this refinancing and principal reduction program from the FHA seem to be in a position where they are, for the most part, unwilling to offer this type of aid to homeowners who are current on their mortgage payments.