Loan Modification

Stop the presses! Banks on board with FHA Short Refinance program?!

By Gina Pogol

Amazingly, after mortgage bloggers including us have spent months snickering at that stupid Short Refi program, America’s five largest mortgage servicers have agreed to participate! If they actually agree to allow a significant number of these refis for underwater borrowers, it would really shake up the mortgage landscape.

Bank of America, Wells Fargo, JP Morgan Chase, Citigroup and Ally Financial/GMAC are all reportedly participating in the struggling program, according to spokespeople for HUD and JP Morgan Chase.

To recap, the program allows homeowners in underwater mortgages to refinance out of a current, conventional mortgage and into an FHA mortgage with neutral or slightly positive equity. The lender currently holding the mortgage (this has been the booger!) must agree to write down enough principal so that the borrower can qualify for a new FHA refinance.

The news comes only a few days after the House of Representatives voted to kill the program on a near party-line vote. Republicans (and just about every mortgage industry commentator) have criticized the $8 billion program as ineffective, correctly noting that only 44 homeowners had been approved for assistance by mid-February, approximately 6 months after the program’s launch.

One wonders if the lenders were scared into getting with the program before something more onerous was concocted by the Administration or Congress. The Obama administration has defended the program, claiming that it isn’t yet on its feet and that bringing the major lenders on board aas part of the issue, along with the need to develop procedures and infrastructure. And, yes, for what it’s worth, the number of homeowners assisted under the program has more than doubled over the past month.

For lenders, the program offers to opportunity to get rid of a risky mortgage while possibly recovering much of what they?re owed, and likely more than what they would get for the property in foreclosure (ignoring the fact that these loans are not delinquent and so foreclosure isn’t exactly on the near horizon).  For  homeowners, it offers a chance to reduce their mortgage debt  and start building positive equity in the property again.

Full post as published by FHA Mortgage Guide on March 15, 2011 (boomark / email).