Do Short Refi’s Really Exist?
16. Aug, 2010
8 Comments
A couple of years ago I was interviewed for an article in the California Association of Realtors Magazine where I describe the strategy of using a “Short Refi” for homeowners who are upside down on their home but wish to stay there.
Click Here to read the article.
What exactly is a “Short Refi”? A Short Refi is similar to a Short Sale but does not require the owner to sell the property, therefore allowing them to stay in their home.
With a Short Sale the underwater homeowner sells their home and the sales proceeds are “Short” or less than the amount due on the loan. The lender in order to facilitate the sale accepts the Short Sale proceeds to payoff the loan.
With a Short Refi, the underwater homeowner does not sell their home, rather they stay in their home and obtain a new refinance loan based on the current market value of their property. The new loan proceeds are “Short or less than the amount due on the loan”. The original lender accepts the new Short Refi loan proceeds as payoff of the loan.
The question is “Do Short Refi’s Really Exist?”
Well HUD thinks they do. They just released a press release titled:
FHA LAUNCHES SHORT REFI OPPORTUNITY FOR UNDERWATER HOMEOWNERS
HUDNo.10-173/U.S. Department of Housing and Urban Development (HUD)
Starting September 7, 2010, the Federal Housing Administration (FHA) will offer certain ‘underwater’ non-FHA borrowers the opportunity to qualify for a new FHA-insured mortgage.
To be eligible for a new loan:
- The homeowner must owe more on their mortgage than their home is worth.
- 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.
- 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%.
- 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.
Will this new government program shore up the foreclosure epidemic and help stabilize the housing market? I don’t think so and here is why. While the housing downturn has affected the whole country, the majority of foreclosures are coming from a few of the hardest hit states such as California, Florida, Arizona and Nevada.
In those states the unemployment rates are among the highest in the country and most of the underwater homeowners find themselves upside down on their loans by 50% or more. Most won’t qualify for this program because they don’t have jobs, they are not current on their loans and unless the first lien holder writes off much more than 10% it just won’t work. Plus, properties with second liens create a new set of challenges.
The language in the program guidelines states : “the first lien holder must agree to write off at least 10% of their unpaid principal balance” implying that they can write off more and that the U.S. Department of Treasury will provide incentives to existing second lien holders but will the lenders cooperate and play ball? Only time will tell.
Do Short Refi’s really exist? Yes they do, but with this new FHA program they just got harder to complete.
-Speare Valasakos
FrontlineEducationGroup.com
TheAgentInsider.com
Author
I just want to thank you for the insightful information you send. I learn a lot from you.
This may help some people because of the tight criteria. Getting the word out will also be tough as getting these things out of underwriting. Plus the lenders have to agree to this program, watch for that aspect of the well intended program.
I have been telling people about this since last week..We will see is this becomes another failed attempt by our peeps in Washington.
Thanks for the link. It is interesting to watch all the new programs and guidelines that are being offered by the government.
Again thanks for keeping us updated.
I found a group out of Norther CA in Pleasanton that is sucessfully getting short refis done (not under this FHA program)
They have completed nearly 200 of them and state that the only lenders (that accept the short payoff) that they can t work with are BofA, IndyMac(One West) and Aurora
Check them out. http://www.attorneyprotection.net
Regarding the guidlines there are many peaple out there that do qualify but again will the banks play ball ? that’s the question
“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%”, NOT GONNA HAPPEN in the real world. Just another government intervention that will slow down foreclosures that will extend this disaster.
Unfortunately I agree with CJ
the more they drag this the more painful i becomes for small business and families. they are giving false hopes . people are wasting their money on attorneys trying to do loan modification… if they would stop interfering people who have been living mrtg free for 2 years can be thrown out