Underwater homeowners without FHA loans will have a new refinancing option starting in September of this year courtesy of that organization. The FHA is going to offer qualified borrowers who are underwater but current on their mortgages the opportunity to qualify for an FHA-insured mortgage – if the borrowers can convince their current lender to write off at least 10 percent of the unpaid principal on the existing mortgage[1].
The program, called the FHA Short Refinance option is designed to prevent strategic defaults and stabilize housing markets through the end of 2012. FHA Commissioner David H. Stevens views the program as a “lifeline” to families who are doing their best to deal with negative equity and remain current on their mortgages. The property must be the homeowner’s primary residence, the homeowner must have a credit score of 500 or higher and the first lien holder must write off at least 10 percent of the existing principal balance or enough to bring the combined loan-to-value ratio to “no greater than 115 percent.” Borrowers cannot currently have an FHA-insured loan under this program.
The Department of the Treasury has promised to offer incentives to second-lien holders who participate in extinguishment of liens to facilitate this process. Do you think that this is a good move for the housing market and will it achieve the stability that it is intended to establish?
Thank you for reading! Your comments and questions are welcomed below.
[1] http://nationalmortgageprofessional.com/
You cannot solve a problem created by debt by taking on more debt. Since the “written off debt” is likely just going to be funded directly or indirectly (i.e. via further bank bailouts) by the government (i.e. taxpayers) this is nothing more than a debt shifting “shell game”.
If the Real Estate markets continue to soften or we experience what some are forecasting as a “double dip” in housing values then these now taxpayer funded loans will fall further underwater.
LESS government intervention and interference and letting the market sort itself out on its own will shorten the continued painful uncertainty which exists in the housing sector.
In 1989 and 1990 we bought a couple rental units (as an investment–but on a “shoestring”), for 112k and 90k.
Shortly thereafter the market dropped and our value was less than 1/4 of what we paid, I know what it is to struggle and make the payments
with no possibility of refinancing to reduce our payments or selling
even at a great loss.
Good rental tenants were also scarce and mainly Section 8 applicants.
14 years later the market popped (this is the cycle). 112k went to 170k
and 90k (which we had already sold for 55k – great loss) to 150k.
We would have been happy with a lesser interest rate and reduction in payments till the market caught up.
I say reduced interest rates/payments and leave the loan amounts alone.
One more government bailout, none of them have worked as advertised yet, neither will this one.
Kind of a stupid feel good, get some votes type project really. Where the biggest drops and most distress has taken place people have lost well over the small amount the FHA is talking about. Many houses in Arizona, Nevada, Florida, California have seen underwater amounts closer to 30-50 percent in several areas. No help for them, and values are dropping in the Northwest, just is not making as much news. Houses selling for $225k to $250k two years ago are on the market for $125-135 now.
Just one more fraud from the government, looks good at CNN and MSNBC but not much use in the real world!
Also no reason for the lenders to do anything if the payments are current, why should they throw away 10% to make FHA happy. Does nothing to help them. How many lenders are going to stay in business dropping money on the table and walking away?
The banks should be the ones stepping up since they caused this problem in the first place. But I know we are living in times where only the little guy pays the price for all bad and illegal actions committed by corp. America, corp. banks, and of course Congress. What a bunch of “CROOKS”. When will we learn?
As a Realtor I agree and disagree with some of the thoughts shared. With foreclosures in my market and others up 33% from April to July, post tax payer credit, we are in for a lot more hurt if we don’t do something. First time buyers have also fallen out of the market in droves as a result of all the uncertainty, and that is going to leave an abundance of supply only driving prices down even further. I agree the banks need to share in the pain, and so for the gov’t to say we must “convince” the lender to reduce by at least 10%… it’s going to have the same effect HAMP did. Unless and until the gov’t puts some teeth into their programs the banks have shown they simply won’t share in the pain. I’m not a big gov’t type gal, but we’re heading into some scary days ahead if there aren’t “Incentives” put into place. Hell, it’s only by the grace of the taxpayer bailouts that most of these lenders are still in business. It’s about time they showed their gratitude.
It seems like a good idea if the alternative is foreclosure. And I don’t mean just good for the homeowner, but also good for the bank if this increases the likelihood that at least 90% of the loan will get paid rather than, say, 60% after foreclosure.
This doesn’t seem like a taxpayer rescue per se, except that the government/people are taking on the risk if the property falls further in value and/or the people default. In this case, it is the government taking a bad loan off of a lender’s hand with a 10% haircut, so to say the borrowers are getting bailed out is not the complete story.
They have no answers and since the private sector will not
step in the government will continue to make things worse
until the economy completely implodes! At this point
adding to the debt does not matter because it is a
mathematical certainty that we will default so every one
should plan accordingly!!!
I deal with the banks everyday – trying to negotiate sales on these properties or trying to negotiate loan mods. The “:Banks” are not cooperating! They have the money and they are keeping it! Banks give clients the run around and lie everyday and NO ONE is watching their business practices! OUR government should be protecting and assisting the PEOPLE, not the Banks or Investment Corporations! We supplied the money to our government through our taxes and have believed there was honesty in what they represented. It’s our money to be used for us. They are all CROOKS! When are we going to listen and learn? when people SHOW you who they are, BELIEVE Them! We have to take care of ourselves!
It is such a shame people will not be responsible for thier decisions. The old fashioned concept of honor and morality seem to be anathama to the populas today. My wife and I spent 3 years going backwward ( to the tune of $3000 dollars ea month) on a home in Colorado before we finally sold it for substantially less than what it had appreciated to, but we honored the contract we had made and came out with a credit score of 805. I was tought as I was growing up that a person was only as good as thier word. I have praticed this and expect it in people I deal with. Come on all of you outh there, get your act together and honor your commitments.
If the government stepped out, companies and consumers would get smarter about their financial decisions. The free market works, if we’d just let it.