F.H.A. gives underwater homeowners a snorkel

The New York Times reports on underwater properties. As we’ve previously written, these underwater properties are not burdened by spring storms but by depressed property values. In other words, the property is now worth less than the homeower’s mortgage.

“STRUGGLING homeowners who owe more on their mortgages than their properties are worth have had few options to restructure their loans, but that may soon be changing for a few of them.

“Six months after the Federal Housing Administration announced an $11 billion refinancing initiative for these “underwater” borrowers, nearly two dozen lenders have agreed to take part in a new loan modification program. “

Unfortunately, Fannie Mae and Freddie Mac will not participate.

“The F.H.A. program — called Short Refi — requires major concessions from lenders, which must agree to write off at least 10 percent of the principal balance, and from investors, who, if they own the mortgage, must also agree to the deal.“

How does a homeowner qualify?

• To qualify, homeowners must be current on their monthly mortgage payments and not already have an F.H.A. loan.
• Loan to value cannot exceed “97.75 percent of the current value of the property; refinanced loans for homeowners whose properties carry second liens cannot exceed 15 percent of the property value.”

Wells Fargo and Ally Financial, formerly known as G.M.A.C., have created test programs for the new F.H.A. program. Bank of America, Citibank and JPMorgan Chase are not participating in the program because Fannie Mae and Freddie Mac are not.

"HUD estimated that 500,000 to 1.5 million borrowers could be eligible for the program."

But the program may be short-lived as the House has voted to repeal the program. But good news may be out there.

“One mortgage expert, John DiIorio, the owner of 1st Alliance Lending, said that big banks were taking part behind the scenes, by referring homeowners to third-party lenders that could restructure their mortgages. He added that 1st Alliance had “several hundred F.H.A. Short Refi” loans in the pipeline.“

“But he said lenders and investors had agreed to reduce principal for only half of the loans he had worked on.”

Underwater loans have been the bane of homeowners throughout New Jersey. Maybe this program will give them some relief.

Read the full article More Loan-Modification Options for the ‘Underwater’.

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