Banks could tank new FHA Refinancing Program
Thursday, September 09, 2010
A recently launched FHA program that allows homeowners who are underwater on their mortgages to refinance at today’s record low rates, take at least 10 percent off their principal, and get a new FHA loan that will leave them with positive equity in their home, is being challenged by banks here in Georgia.
FHA estimates, nationally, some three to four million homeowners could take advantage of the program, called FHA Short Refinance, which they feel would dramatically stabilize housing markets, reduce delinquencies and foreclosures, and make it possible for many “move up” owners to sell and buy a new home that better fits their needs.
However, lenders must voluntarily agree to write off 10 percent of the unpaid principal in order to bring a borrower’s combined loan-to-value ratio to no greater than 115 percent. Real estate and mortgage professionals around the country fear that the principal reduction, which is also required in modifications under the Treasury’s Housing Affordable Modification Program (HAMP), to be a potential roadblock.
In some markets, like Atlanta, where prices are still far below the peak in 2006/2007, homeowners who bought at that time today are far below the 97.5 percent loan-to-value ratio the new program requires. In addition to getting the lender to eat 10 percent or more of the principal, the program, also requires:
* The homeowner must qualify for the new loan under standard FHA underwriting requirements and have a credit score equal to or greater than 500.
* The homeowner must owe more on his/her mortgage than their home is worth.
* The homeowner must be current on his/her existing mortgage.
* The property must be the homeowner’s primary residence
- Scott Askew
Posted in: Intown Atlanta Real Estate News