Conventional borrowers whose mortgage balances exceed their home values can now refinance at today’s low interest rates through a Federal Housing Administration program.
The FHA Short Refinance option was announced Tuesday by the U.S. Department of Housing and Urban Development. The program was originally detailed in Mortgagee Letter 2010-23.
The option is available on owner-occupied transactions with case numbers issued today or later and closed by Dec. 31, 2012. The loan being paid off cannot be FHA-insured.
The program requires that the borrower be current on the loan. The minimum FICO score is 500, and the loan-to-value must be higher than 100 percent prior to the refinance transaction.
In order to qualify, the existing lender must voluntarily agree to reduce the principal by 10 percent. The new FHA LTV can be as high as 97.75 percent, while the combined LTV can go as high as 115 percent.
Standard FHA requirements apply.
The program provides incentives for second lien holders who reduce or extinguish their liens.
Participating servicers must execute a Servicer Participation Agreement with Fannie Mae as financial agent for the United States by Oct. 3.
Factoring other Obama administration programs, HUD estimates 3 to 4 million borrowers are being helped through federal programs.
