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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.

Details of the FHA Short Refinance were unveiled today by the U.S. Department of Housing and Urban Development in Mortgagee Letter 2010-23. The new program was originally announced in March and is an update to HUD’s refinance program.

The revisions kick in on Sept. 7 and run through the end of 2012.

Conventional borrowers with negative-equity who are current on their home loan can qualify for an FHA-insured refinance if their existing first-mortgage lender voluntarily agrees to at least a 10 percent principal reduction. The maximum LTV after the principal write-down is 97.75 percent, while the maximum combined LTV is 115 percent.

Loans that are already FHA-insured are ineligible for refinance under the FHA Short Refinance program.

The property must be owner-occupied, and a minimum credit score of 500 is required. Borrowers must qualify using standard FHA underwriting requirements.

Between 3 and 4 million borrowers are expected to benefit from this and other Obama administration initiatives by the end of 2012, HUD said.

FHA Commissioner David H. Stevens called the short-refinance program “another tool to help overcome the negative equity problem.”

Eligible servicers need to execute a servicer participation agreement by Oct. 3 with Fannie Mae in its capacity as agent for the United States.

The U.S. Department of Treasury is providing incentives for existing second-lien holders who agree to full or partial extinguishment of their liens.

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