TopMortgage Compliance Update (1)
September 8, 2010
FHA: Short Refinance Option

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On August 9, 2010, we notified you of FHA's issuance of Mortgagee Letter 2010-23 (8/6/10), which announced the FHA Short Refinance program. We also provided Highlights of the product.

The Short Refinance concept was originally announced in March 2010. In our email we noted that the Short Refinance would be available on September 7, 2010, and will continue to be available until December 31, 2012. The Short Refinance is meant to offer an additional refinancing option for underwater borrowers.

On September 7, 2010, FHA announced the launch of the Short Refinance loan product.

This refinance program offers certain "underwater" non-FHA borrowers who are current on their existing mortgage and whose lien holders agree to write off at least ten (10%) percent of the unpaid principal balance of the first mortgage, the opportunity to qualify for a new FHA-insured mortgage.

This loan product is obviously targeted to help people who owe more on their mortgage than their home is worth - also known as being "underwater" - because their local markets saw large declines in home values.

Participation in FHA's Short Refinance program is voluntary and requires the consent of all lien holders

The homeowner must:
  • owe more on their mortgage than their home is worth.
  • be current on their existing mortgage.
  • qualify for the new loan under standard FHA underwriting requirements.
The property must:
  • be the homeowner's primary residence.
The first lien holder must:
  • agree to write off at least 10% of their unpaid principal balance
The existing loan to be refinanced must:
  • not be an FHA-insured loan.
The new refinanced loan must:
  • have a loan-to-value ratio of no more than 97.75 percent and a combined loan-to-value ratio no greater than 115 percent.
Second lien holders:
  • who agree to full or partial extinguishment of the liens receive incentives.
  • must execute a Servicer Participation Agreement (SPA) with Fannie Mae on or before October 3, 2010.
Visit Library for Issuances
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FHA Refinance of Borrowers in Negative Equity Positions
Mortgagee Letter 2010-23
August 6, 2010

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