FHA Negative Equity Mortgage Refinance Program
Struggling underwater? There might be some hope for you with the FHA underwater mortgage refinancing program. The common way to refer to negative equity positions on mortgages, is to call them ‘underwater’. It is estimated that about 3-4 million borrowers and homeowners are now ‘underwater’, they have a mortgage loan which they borrowed before 2009, and they market value of the house has plunged. These 3-4 million Americans have mortgages which are worth more than the value of the home they own.
The Making Home Affordable Program (MHA) goals are to solve these kind of problems to help as many Americans be a proud homeowner.
This situation is unfair to the homeowners as they are paying high interests (from before 2009) on large amounts (like the home value back then) while actually the current rates are lower and the value of the homes is substantially lower. The lenders are at risk too, because if the borrowers failed to pay the mortgage payments, they will have to sell the homes as foreclosure, and these homes are worth less than the amount owed.
Underwater Refinancing Is An Option for Lenders
The U.S. Department of Housing and Urban Development (HUD) released a program with the FHA to help million of homeowners which are currently underwater, to refinance their mortgage. The program is set to run from 2010 till 2012, so it might be a good chance to solve any underwater mortgage refinancing, with the FHA offer.
The special thing about this FHA underwater refinancing, is that though it is an FHA refinancing program, it is a voluntary option for the lenders. There is no way the federal government can make lenders join or decide which mortgages to refinance, but after placing some basic guidelines for underwater refinancing, more and more lenders join.
The FHA has sent a mortgagee letter to all mortgage lenders with the specification on the underwater refinancing process, guidelines and requirements. You can read below the main key underwater refinancing guidelines and FHA refinancing requirements for this option.
FHA Underwater Refinancing Requirements
The FHA and the HUD have some basic underwater refinancing requirements, these requirements are for the borrowers and the mortgagee lenders. All these FHA underwater refinancing requirements make sense and are planned to help as many people who are ‘drowning’ underwater.
There are requirements from the borrower to meet some conditions to be able to qualify, and there are specific conditions for the lenders what is expected from them withing this program guidelines.
Who Is Eligible For Underwater Refinancing
- Negative Equity – Well the borrower must be currently in an underwater mortgage situation to be able to qualify.
- No Late Payments – The homeowner must be current on mortgage payments. Because this is a voluntary program for the lenders.. no one would refinance for an unifying borrower.
- Current Home Residence – The borrower must be living in the home being refinanced for qualifying. The program is meant to help homeowners and not real estate investors.
- Non FHA Loan – The underwater program is not for FHA home loans. It must be a private regular mortgage.
- Meet FHA Loan Requirements – The borrower must meet the minimum FHA requirements concerning mortgage approval. This means having a FICO score 500 or higher. To improve your FICO score in a few weeks, see here.
- Lien Holder Write Off 10% – The existing first lien holder must write off at least 10 percent of the unpaid principal balance.
- LTV of 97.75% – The Loan to Value ratio for the FHA insured loan must not exceed the 97.75 percent.
- All Mortgages Will Not Exceed LTV of 115% – If the lender has more than one mortgage on the property, than by the FHA underwater refinancing requires, they must all be blended to the maximum of 115% of LTV loan to value ratio.
- Front End/Back End Debt To Income Ratio – The FHA and the lenders are worried whether the borrower will be able to stand the new mortgage offer. For this reason they require a ‘front end debt to income‘ ratio of 31% and a ‘back end debt to income’ ratio of 50%.
FHA Mortgage Underwriting Requirements
As you may know, the FHA is not granting funds for mortgages, the government administration is insuring the mortgages for the lenders, and backing the borrowers obligation to pay the mortgage in full. For this reason the FHA has it’s own underwriting processchecking and pre qualifying the borrowers.
With underwater refinancing requirements, the underwriting process is the same, and the lenders need to use the FHA TOTAL process for the evaluation of the risk classifications. If the TOTAL process of risk classifications has “proved” the borrower, then the lender does not need to over-check the lender again. So once as a borrower you have a FHA refinancing ‘clearance’ you are OK as far as the lenders are concerned.
It is the lenders responsibility to check the data they sent, and be sure that all the information has been evaluated. They need to make sure that Direct Endorsement Underwriter has seen the appraisal.
Underwater Refinancing HARP and HAMP
The federal government (HUD and FHA) has issued programs to help underwater homeowners. The two refinancing options seem the same, but they have some fine differences between them.
HARP (Home Affordable Refinance Program) was made to help underwater refinancing, the main requirements are LTV of 105%-125% (loan to value) and the borrower must be never late on payments for the last 12 month. The mortgage refinanced must be owned by Fannie Mae or Freddie Mac.
HAMP (Home Affordable Modification Program) was made for those facing foreclosure. The basic HUD requirements are that the mortgage is owned by Fannie Mae or Freddie Mac or the U.S Treasury. And there are signs for immediate danger for the survival of the mortgage as it is. Within the HAMP there is an incentive for the lenders to change some mortgage terms.
FHA Underwater Refinancing Conclusion
If you are a homeowner and you are ‘underwater’ the best thing to do, is to find which of the underwater refinancing programs is best for you. Since most of those refinancing programs are voluntary for the lenders, you will have to show that you are a customer they are willing to accept.
Though the FHA minimum FICO score is 500 there is likely not to be any bank who will want a new costumer with such a poor credit score. The minimum FICO score for the FHA mortgages is 580, but lenders today approve applications with a score over 620 and 640, this is called overlapping. So if your score is lower than that you must begin fixing your credit score, it is a long journey, but it is worth to begin it as soon as possible.
For the best option to be approved for the FHA underwater refinancing requirements, you must raise your credit score, so you will have better chances getting approved by the lenders. See the best selling credit repair program used by thousands!.
So What Can You Do To Improve Your Situation?
If you will do nothing.. don’t expect anything to happen. The best advice is to bump your credit score up! It will give you better leverage when facing the lenders, and better negotiation position when applying for any financial need.
Lets not forget you are probably paying $500-$1000 extra per year in higher interest rates, and credit payments.
If your score is below 700, you might want to clean it yourself – get this ‘Credit Repair University’ which will save you money and time.
Yes, you might need to invest a small sum to get a grip of things.. But if you think education is expensive.. try ignorance..
You are probably paying thousands of dollars per year in fees and interests to credit companies which could be going straight to your pocket. Don’t be cheap when it comes to financial education.. Ignorance costs more.