Starting September 7, 2010, the FHA offers help to qualifying non-FHA borrowers who are “underwater” on their home loans. The FHA Short Refinance option is open to those who are current on their existing mortgage—but the lender must agree to forgive at least 10% of the unpaid principal on the original note to bring the combined loan-to-value ratio to a maximum 115%. The new FHA-guaranteed loan must have a loan-to-value ratio of no more than 97.75%.
Non-FHA borrowers who meet these guidelines and additional credit qualifications (see below) are allowed to apply to refinance into new FHA-insured home loan. The program is not open-ended—the original FHA press release announcing the start date of the FHA Short Refinance option says the program is expected to help as many as four million homeowners through the end of 2012.
The FHA press release says the FHA Short Refinance program is voluntary and “requires the cooperation of all lien holders”. This program is not automatically open to any homeowner who is underwater on a conventional home loan; as stated previously, there is a requirement that the borrower be current on all mortgage payments. They must also qualify for the FHA Short Refinance program by having a credit score of 500 or better and meet other typical FHA loan
prerequisites.
FHA Short Refinancing is only for borrowers who are underwater on properties that are considered the borrower’s primary residence, and is intended only for those with non-FHA guaranteed home loans. A borrower said to be “underwater” on a conventional home loan is basically stuck with a property that isn’t worth as much as the amount owed on the note—usually because of declining property values.
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