Friday, August 6, 2010

Updated: Details on FHA Underwater Refi Program Announced; 10% Principal Reduction Requirement Seems Likely to Limit Use

 Update is that I have added a link to the economic analysis of the impact of this program below. 

HUD PR is HERE (news often not good when release comes out Friday).

Mortgagee letter has full details HERE

Summary from HUD PR:
Participation in FHA's refinance program is voluntary and requires the consent of all lien holders. To be eligible for a new loan, the homeowner must owe more on their mortgage than their home is worth and be current on their existing mortgage. The homeowner must qualify for the new loan under standard FHA underwriting requirements and have a credit score equal to or greater than 500. The property must be the homeowner's primary residence. And the borrower's existing first lien holder must agree to write off at least 10% of their unpaid principal balance, bringing that borrower's combined loan-to-value ratio to no greater than 115%.

In addition, the existing loan to be refinanced must not be an FHA-insured loan, and the refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent. Interested homeowners should contact their lenders to determine if they are eligible and whether the lender agrees the write down a portion of the unpaid principal.

500K to 1.5 Million Will Use?
In PR HUD says " HUD conducted a Regulatory Impact Analysis for the enhancements contained in this mortgagee letter. It is estimated that between 500,000 and 1,500,000 borrowers will refinance using these enhancements and the net economic benefits will be between $11.774 and 35.322 billion."  

That economic cost/benefit analysis can be found HERE. Image of table in this post is one of several in the analysis, I suggest you read the entire document to get the full picture.

I'm afraid I'm a "doubting Thomas" on the number of users of this program given the principal reduction requirement.

Originally created and posted on the Oregon Housing Blog.

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