Underwater Home Loan Assistance Through The FHA Short Refinance Program–Options For Principal Reductions

Underwater home loan assistance has been made available through various programs, like the FHA’s short refinance program, and depending on a homeowner’s situation, there have been different methods which have been used to help homeowners find more affordability, avoid foreclosure, and in some cases there have even been offers of principal reductions. Recently, there has been a great deal of question and debate surrounding programs like the Short Refinance initiative and there are reports that votes on bills which will end these initiatives will take place during the week of March 7, 2011.

The FHA Short Refinance Program is one of the more newly implemented initiatives that is hoped to aid homeowners who are facing various housing troubles, as not only are underwater mortgages still causing difficulties in the lives of homeowners but unemployment remains a problem as well. Initially, the FHA short refinance program was set in place to allow homeowners current on their underwater mortgage payments the option to refinance and get a principal reduction, but the program has seen little success since it started.

However, it was recently reported that the House Financial Services Committee voted to eliminate the FHA short refinance program, which will lead to a vote in the House in the coming days. However, there are arguments that the FHA’s short refinance program has not had the opportunity to essentially begin aiding homeowners in a way that proves it’s usefulness, as the program have only been in place since September 2010 and there are some indications that servicers have not been able to structure programs since that time in a way to allow homeowners to begin fully using this underwater mortgage assistance plan.

On March 2, David Stevens, the Assistant Secretary of Housing, Commissioner of the Federal Housing Administration and Department of Housing and Urban Development testified before the House Financial Services Committee concerning the FHA Short Refinance Program and stated, “The benefit of this program is to make mortgage payments more affordable and prevent dramatic declines in property values in order to prevent foreclosures that impose costs on borrowers, lenders and neighboring property owners.”

Yet, there are varying opinions on underwater mortgages and these mortgage assistance efforts as there have been proposals to not only end additional programs, like the Emergency Homeowners Loan Program, but some members of Congress have even proposed terminating the Making Home Affordable Program as well. Opponents state that the cost of these initiatives far outweigh the benefits that homeowners are receiving due to the fact that a small number of individuals may have been helped or continued defaults have plagued homeowners even after assistance was offered, and some feel that these programs are more of a hindrance than help.

However, arguments being made in favor of the FHA Short Refinance Program and the Emergency Homeowners Loan Program have, again, stated that these plans have not had sufficient time to be beneficial for homeowners and, not only could they assist some individuals in negative equity situation but homeowners who may be unemployed and face foreclosure as well. A vote in the House to terminate these programs is supposed to take place in the coming days, but there are homeowners that continue to hope these options would remain available as they can offer more underwater mortgage affordability and principal reductions in cases where severe negative equity is present.