WASHINGTON – In an effort to help responsible homeowners who owe more on their mortgage than the value of their property, the U.S. Department of Housing and Urban Development today provided details on the adjustment to its refinance program which was announced earlier this year that will enable lenders to provide additional refinancing options to homeowners who owe more than their home is worth. Starting September 7, 2010, the Federal Housing Administration (FHA) will offer certain ‘underwater’ non-FHA borrowers who are current on their existing mortgage and whose lenders agree to write off at least ten percent of the unpaid principal balance of the first mortgage, the opportunity to qualify for a new FHA-insured mortgage.

The FHA Short Refinance option is targeted to help people who owe more on their mortgage than their home is worth – or ‘underwater’ – because their local markets saw large declines in home values. Originally announced in March, these changes and other programs that have been put in place will help the Administration meet its goal of stabilizing housing markets by offering a second chance to up to 3 to 4 million struggling homeowners through the end of 2012.

“We’re throwing a life line out to those families who are current on their mortgage and are experiencing financial hardships because property values in their community have declined,” said FHA Commissioner David H. Stevens. “This is another tool to help overcome the negative equity problem facing many responsible homeowners who are looking to refinance into a safer, more secure mortgage product.”

Today, FHA published a mortgagee letter to provide guidance to lenders on how to implement this new enhancement. Participation in FHA’s refinance program is voluntary and requires the consent of all lien holders. To be eligible for a new loan, the homeowner must owe more on their mortgage than their home is worth and be current on their existing mortgage. 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 property must be the homeowner’s primary residence. And the borrower’s existing first lien holder must agree to write off at least 10% of their unpaid principal balance, bringing that borrower’s combined loan-to-value ratio to no greater than 115%.

In addition, the existing loan to be refinanced must not be an FHA-insured loan, and the refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent. Interested homeowners should contact their lenders to determine if they are eligible and whether the lender agrees the write down a portion of the unpaid principal.

To facilitate the refinancing of new FHA-insured loans under this program, the U.S. Department of Treasury will provide incentives to existing second lien holders who agree to full or partial extinguishment of the liens. To be eligible, servicers must execute a Servicer Participation Agreement (SPA) with Fannie Mae, in its capacity as financial agent for the United States, on or before October 3, 2010.

For more information on FHA Short Refinance option, read FHA’s mortgagee letter.

Tax Credit Uncertainty Not Benefiting Housing Market, by CJ Moore, Technorati.com

Could the home buyer tax credit be returning?

That’s the hot topic right now in housing, as secretary of Housing and Urban Development Shaun Donovan wouldn’t squash the idea when he was asked about it Sunday on CNN’s “State of the Union.”

“I think it’s too early to say after one month of numbers whether the tax credit will be revived or not,” Donovan said. “All I can tell you is that we are watching very carefully. … We are going to be focused like a laser on where the housing market is moving going forward, and we are going to go everywhere we can to make sure this market stabilizes and recovers.”
If Donovan were to follow his own advice – making sure the market stabilizes – he would be smart to provide some certainty to housing. By leaving the possibility open, Donovan could be postponing any chance of a recovery.

The housing market certainly needs a boost after the news last week that new home sales and existing home sales in July dropped to record low levels.

The tax credit certainly influenced these numbers. Many prospective homebuyers rushed to meet the April 31 deadline so they could receive the tax credit, and that undoubtedly interrupted the month-to-month flow of housing. By leaving the possibility open for another tax credit, it could have the opposite effect. Prospective buyers might hold out and wait to see if the credit returns.

With Donovan’s wishy-washy response on Sunday, the Obama administration had a chance to give a clearer answer on Monday, and White Press Secretary Robert Gibbs failed to do so, saying that bringing back the tax credit “is not as high on the list as many other things are,” but still leaving the possibility open.
Another tax credit could provide a boost, but it’s debatable whether that boost would really be beneficial in the long term. It could be best to sit back for a while and see what happens and focus on other areas that could benefit housing, such as unemployment.

Read more: http://technorati.com/business/finance/article/tax-credit-uncertainty-not-benefiting-housing/#ixzz0yIHYvbvn

Borrowers Take Advantage of FHA-Refinance After Inability to Sell Homes, by Vanessa Rodriguez, Freerateupdate.com

August 31, 2010 (FreeRateUpdate.com) – Homeowners are finding it particularly difficult these days to sell their homes. According to the National Association of Realtors, demand for single family residences has dropped to a 15-year low. Home purchases fell 12 percent in June. In July, they more than doubled the previous month by plunging 27 percent. It is reported that 1 in 5 homeowners is behind in his or her payment. As if the news weren’t bad enough, foreclosures are expected to rise severely this year and next. With these disheartening statistics, homeowners are not left with many options. Fortunately, however, refinancing current mortgage loans is one option, and a viable one at that. Moreover, various government programs are making refinances possible, even for underwater mortgages, and borrowers do not have to have an FHA-insured loan to qualify. Low mortgage rates are definitely strong factors that fuel the refinancing boom. Conforming rates, as of this writing, are 4.125 percent, which is slightly higher than last week’s record low of 4.00 percent, with 0.7 to 1 point origination. As mortgage loan officer Jason Paul from AmCap Mortgage observed, “[We are] absolutely seeing a significant rise in applications for refinances because mortgage rates are so low.” The Mortgage Banks Association reported that refinance applications increased by 17 percent and caused a surge of 13 percent in overall mortgage applications. Last year, the Obama Administration released a new program, the Home Affordable Refinance Program (HARP,) to help homeowners refinance their mortgage loans. This program allows homeowners who owe more on their house than its current value to refinance into better loan terms. The program does not reduce principal amount owed. However, it does permit homeowners to take advantage of ultra low mortgage rates. HARP is also beneficial for interest-only borrowers, adjustable rate mortgage borrowers, and balloon payment borrowers because it allows them to reduce the amount of interest they would pay over the life of the loan.

To be eligible, the residence must be owner-occupied and the homeowner must be current on his or her mortgage payments. This means that he or she has not missed any payments, does not have more than one 30-day late in the past 12 months. If the loan was originated in less than 12 months, then the homeowner should have never missed a payment. The amounts owed on the mortgage should not exceed 125 percent of the current market value of the property. For example, if a home appraises for $200,000 but the homeowner owes $275,000, then he would not qualify for HARP. However, if he owes less than $250,000, he does qualify. The loan must be owned or guaranteed by one of the GSEs, Fannie Mae or Freddie Mac. The homeowner must also have the reasonable means to afford the new mortgage payment (i.e. steady income.) The program is set to expire June 10, 2011.

The U.S. Department of Housing and Urban Development (HUD) just announced that it is expanding its refinance program. Starting September 7th, 2010, the Federal Housing Administration, which is regulated by HUD, will offer non-FHA borrowers who are underwater on their loans and current on payments the opportunity to refinance into an FHA Short Refinance option. In order for prospective borrowers to qualify, lenders must agree to write off at least 10 percent of the unpaid principal of the mortgage, which should bring the borrower’s combined loan-to-value ratio less than 115 percent. Borrowers must meet standard FHA underwriting requirements, occupy the property as a primary residence, and their credit score must be equal to or better than 500. This is exciting news especially for homeowners who are denied a loan modification through their banks. Interested borrowers typically foresee financial hardship, primarily due to loss of income, and would greatly benefit from an FHA Short Refinance.

FHA Commissioner, David Stevens, believes the new program is a much needed “lifeline” for American families. Although the success of the FHA Short Refinance has yet to materialize, many have high hopes because it gives borrowers and lenders another weapon to battle negative equity in the current flagging housing market.