FHA Underwater Refinancing - Short Refinance Program

With the mortgage market facing a sudden crisis, more homeowners are finding it difficult to sell off their homes. According to a survey done by an organization, the demand for single family residences have dropped to a 15 year low. Home purchases have fell 12% in the month of June and are likely to fall more. In the month of July the number plunged almost more than double and reached a 27%. It is seen that one among five homeowners have fallen back on their monthly mortgage payments and are seeking a refinance.

According to the recent news, foreclosures are expected to rise severely this year and also in the approaching year. With such disheartening statistics of increasing foreclosures, homeowners are not left with many options. But fortunately though, refinancing your current mortgage is perhaps one of the best options and the most viable one to adopt by a homeowner. The underwater homeowners who lack the ability to arrange their monthly mortgage payments are taken care of by the US government. The government programs are making refinancing possible, especially for underwater owners. Nowadays borrowers do not require having an FHA insured loan to qualify.

Low mortgage rates are certainly the strong factors that boost the popularity of refinancing. The confirming rates are 4.125%, which is slightly higher than last week’s record low that was at 4% with 0.7-1 points on origination. A mortgage loan officer has reported said that he has been seeing a significant rise in the number of applicants for refinancing because the mortgage rates are so low. The Mortgage Banks Association (MBA) reported that refinance applicants increased by 17% and caused an increase of 13% in the total mortgage applications.

The previous year Obama administration had launched a refinance program called the Home Affordable Refinance Program (HARP), to help underwater homeowners refinance their mortgage. This program lets homeowners breathe free as it allows those homeowners who owe more on their homes than its current market value, to refinance their mortgage loans into better terms and conditions. The HARP does not allow any reduction in the mortgage amount but it permits homeowners to take advantage of low interest rates on their loans. This program is also beneficial for interest-only borrowers, adjustable rate mortgage borrowers and balloon payment borrowers because they can also reduce the interest rates throughout the term of the loan.

The eligibility criteria of the HARP are not a very complex one. The owner of the house should be the primary occupant of the house and must be current on his mortgage payments. This means that he should not have missed on his monthly payments on the mortgage for the last 12 months. The amount owed on the mortgage should not be less than 125% of the current market price of the property.

The US Department of Housing and Urban Development (HUD) has recently announced that it’s expending its refinance program. A new rule will be applicable from the September 7th, 2010, where the FHA will offer non-FHA borrowers, who are underwater on their loans but current on their loan payments, the opportunity to refinance into a FHA Short Refinance option. If the prospective borrowers have to qualify, the lenders must agree to write off at least 10% of the unpaid principal of the mortgage. The borrowers are also required to meet the standard FHA underwriting requirements, occupy the home as a primary residence and they should have a good credit score.

This can be good news for those distressed homeowners who are denied loan modification by their banks. Interested borrowers typically see financial hardship primarily due to loss of income. These are the homeowners who will greatly benefit from the FHA Short Refinance Program.