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Will The New FHA Short Refinance Program Help Stem The Foreclosure Tide?

By C. J. Coury

Many of you have asked me what I expect the market impact to be of the newly released government program that calls for some principal reduction on the part of the lender. This is the FHA Short Refinance Program and here are the highlights of it:

 Program dates are 9/7/2010 to 12/31/2012
 Borrower must owe more on their first mortgage than the property is worth
 Program is for primary residence occupancy only
 Mortgage being refinanced must be current
 Borrower’s existing loan must not be an FHA-insured loan
 Borrower must meet all FHA eligibility criteria
 Program participation is voluntary and requires consent of lien holders
 Lender must write off unpaid principal balance of the original first lien mortgage by at least 10%
 The new FHA loan cannot exceed 97.75% of the value of the home
 Combined mortgage debt must be written down to no more than 115% of appraised value

While this program certainly has merit it may be difficult for all of the above pieces to come together for the large number of homeowners (up to 1.5 million) that the government is hoping will benefit from this initiative. Many analysts don’t expect participation to exceed 200,000.
 
As of the writing of this column none of the four major loan servicers; Wells Fargo, CitiMortgage, Chase or Bank of America, have elected to participate in this write-down program. Without their involvement I can’t imagine that our local market will experience any meaningful relief from this particular program but, as with the several other government initiatives, some will definitely benefit – and that can’t be bad.

C. J. Coury is a Vice President with HomeBanc and oversees the Greater Sarasota market. He has been a mortgage finance professional since 1983. C. J. may be reached at (941) 730-2444 or by email at cj.coury@homebanc.com.

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