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A new FHA refinance program is targeting non FHA home owners that are upside down on their mortgage equity. There is now more information from FHA about the program and how it will work.

Here are the eligibility requirements:

• Existing loan to be refinanced is not FHA insured;
• Must owe more on their mortgage than the value of the property;
• Must be current on the existing mortgage to be refinanced;
• Must have a “FICO based” decision credit score greater than or equal to 500;
• Existing first lien holder must write off at least 10% of the unpaid principal balance (UPB);
• Loan-to-value (LTV) ratio of no more than 97.75%;
• Combined loan-to-value (CLTV) ratio must be 115% or less; and
• For manually underwritten loans, the qualifying ratios can be no greater than 31/50.

Additionally, standard FHA underwriting requirements apply. That should be interesting since nothing about this program is “exactly” standard. Also, homeowners are not eligible for the program if they have a conviction for (a) felony larceny, theft, fraud, or forgery; (b) money laundering; or (c) tax evasion within the past 10 years.

One of the parts of the program I thought would be most helpful is for those that have a 1st and 2nd mortgage on their property because it allows a CLTV (combined loan to value) of 115%. However, when looking over the program details, I think this may become very complicated. For instance, the first mortgage holder must reduce the principal by a minimum of 10% and a maximum LTV (loan to value) of 97.75% and they receive payoff of that amount. The second mortgage holder will have to reduce their loan amount to the 115 percent CLTV mark and they will receive a “refinance compensation” from the Treasury and HUD for the amount they forgave and payments on the remainder. This is a complicated formula.

I am very interested in seeing how this plays out. As the Realtors® I have talked to can attest, second mortgage holders can be a source of annoyance on a short sale transaction and this is a “short” refinance transaction. It can take several months to get an answer from the 2nd mortgage holder and in this scenario, they aren’t getting paid up front, they will still have to take payments. They also have to register with Fannie Mae to be able to receive the compensation from HUD.

Contact me

This is still in its preliminary stages, but if you are interested in applying for this program, it is not too early to start the process, it will probably take some time to get the proper approvals from current lien holders. Navigating the mortgage approval process can be daunting. You need someone on your side. I am available right now to help you with the loan process and know the ins and outs of FHA, VA, USDA and conventional financing. If you want to buy a home using an FHA loan or refinance using VA, I am here to help. Contact me at Alpine Mortgage Planning, 1200 Executive Pkwy., Ste. 100, Eugene OR 97401, 541-342-7576/541-221-3455 cell or by e-mail. Only you can make the choice it is time to get the process started.