Okay, so starting September 07, 2010, a new refinance program comes in effect.  The program is designed to help  homeowners that make their mortgage payments on time ,but have no equity in their homes.  According to FHA ‘s  six page Mortgage Letter 2010-23, which updates lenders and mortgage brokers on FHA guidelines. Now since sometimes, these guidelines are written in a way that are too confusing , I have  added my interpretation in red letters. So here we go:

• The homeowner must be in a negative equity position. In plain english. you must be upside down on your house.
• The homeowner must be current on the existing mortgage to be refinanced. No late payments ALLOWED!
• The homeowner must occupy the subject property (1-4 units) as their primary residence. It must be the property you live in.
• The homeowner must qualify for the new loan under standard FHA underwriting requirements and possess a “FICO based” decision credit score greater than or equal to 500. According to this guideline, your FICO can be a minimum of 500. This guideline gets trickier since a lot of financial institutions will not accept FHA borrowers with FICO less then 620 regarless of FHA guidelines.
• The existing loan to be refinanced must not be a FHA-insured loan. Okay so your current loan needs to be a conventional  or subprime loan.
• The existing first lien holder must write off at least 10 percent of the unpaid principal. Your current lender needs to agree to lower the balance of your current loan by at least 10%.
• The refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent. Let’s say that you owe $300,000 but your property is worth $150,000, so your new loan can not exceed $146,625.00, which sounds wonderful. Right?..remember your current lender has to voluntarily lower your balance. Hmmm!!! I don’t think your lender will like that very much.
• Non-extinguished existing subordinate mortgages must be re-subordinated and the new loan may not have a combined loan-to-value ratio greater than 115 percent.  In other words, if you have a second loan, the second loan can not be added to the new FHA loan, but the combine total of the 1st and 2nd lien CANNOT EXCEED 115% of the current value.
• FHA mortgagees are not permitted to make mortgage payments on behalf of the borrowers or otherwise bring the existing loan current to make it eligible for FHA insurance. Once again, your need to be current on your mortgage.
• The existing loan to be refinanced may not have been brought current by the existing first lien holder, except through an acceptable permanent loan modification. So if your mortage has been currently modified, you don’t qualify for this program.

Now after reading the guidelines, it looks like FHA might be heading in the right direction! …Well not so fast!  We all need to remember that at the end of the day, the Lien Holder (current lender) is ONLY encouraged to participate. The Lien Holder has to agree to lower that mortgage balance and that might represent a challenge. Experience will tell us that banks are not willing to lose money. If  the current mortgage loan has to be current with no late payments reported, a Lien Holder might not see the need to lower a balance since the current mortage is in good standing and there is NO financial hardship.  

Now if you ask me, it never hurts to try……. so I will be calling my clients, friends and family to see if this program delivers what it promises!  

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