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FHA Short Refis Enhanced

Program extended, delinquent borrowers can participate

March 13, 2012

By staff

A Federal Housing Administration refinance program for negative-equity borrowers has been extended. In addition, several enhancements include the ability for delinquent borrowers to qualify, more flexible debt-to-income ratios and second-lien payoffs.

Back in August 2010, the Department of Housing and Urban Development issued guidelines for a program that enables conventional borrowers with current mortgages and negative equity to qualify for an FHA-insured refinance if their existing first-mortgage lender voluntarily agrees to at least a 10 percent principal reduction.

The loan-to-value is capped at 97.75 percent, while the maximum combined LTV is limited to 115 percent. Minimum credit scores are 500.

The program, which went live the following month, was slated to run through the end of this year.

In Mortgagee Letter 12-5, HUD has extended the life of the program until Dec. 31, 2014.

Among other changes outlined in the bulletin is the ability for delinquent borrowers to successfully complete a trial payment plan in order to qualify. The amount of the trial payment should be based on the projected reduced loan balance at the maximum LTV or CLTV with a 30-year amortization and market FHA rates.

Just three consecutive on-time payments are required.

Borrowers who don't make the three on-time payments can just start another trial payment plan. Servicers can document the trial payment history with a servicing payment history, a trial payment plan agreement, canceled checks, or bank statements reflecting electronic withdrawals for the payments.

The variance between the trial payment amount and the final payments cannot exceed 6 percent.

Another enhancement enables the payoff of second liens at the discretion of the first lienholder as long as the maximum LTVs are maintained.

On loans that receive a "refer" risk classification from the TOTAL Mortgage Scorecard or a manual underwriting, the maximum front-end DTI ratio was raised to 35 percent from 31 percent. The back-end DTI ratio in these cases cannot exceed 48 percent.

The changes impact loans with case numbers issued today or later.

HUD Releases Short Refi Details
The Federal Housing Administration is helping upside-down borrowers with conventional mortgages -- as long as their lenders agree to a discount.

FHA Short Refis Go Live
Conventional borrowers whose mortgage balances exceed their home values can now refinance at today's low interest rates through a Federal Housing Administration program.

Mortgagee Letter 2010-23

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