March 3, 2011 (Shirley Allen)
Federal Housing Administration (FHA) Commissioner David Stevens testified before a House Financial Services panel, that is slated to vote on terminating the FHA Short-Refi and HAMP programs, twenty-three lenders had signed up to participate in the Short-Refi program designed to help underwater borrowers avoid foreclosure as of February 11.
Stevens also reported that two major lenders, Wells Fargo and Ally Financial, recently announced they were beginning pilot programs, selecting a few loans held in their portfolio.
The Short-Refi program is one of four programs that House Republicans are considering terminating, stating that government-backed loan modification/foreclosure prevention programs have “failed and are ineffective.” You can read the full report here.
The FHA launched the Short-Refi program September 7, 2010. To date, 245 FHA case numbers have been requested, and 44 loans have been endorsed.
Under the program, eligible borrowers can receive an FHA-insured loan if the lender or investor writes off the unpaid principal balance of the original first-lien by at least 10 percent.
To be eligible for the new loan, the homeowner must be underwater but still current on the mortgage, which cannot be already insured by the FHA. A credit score of 500 or better is required. The new refinanced loan must have a loan-to-value ratio of no more than 97.75 percent.
After receiving the new refinancing through the program, the borrower’s combined loan-to-value ratio on the re-subordinated mortgages cannot exceed 115 percent. The new FHA mortgage can only be used to refinance the unpaid principal balance on the first lien.
So far, loans approved under the program have had an average credit score of 711. The average write-off is $60,000, and the average balance on the new government guaranteed mortgage is $248,400 with a 91.4 percent LTV ratio.
“Although the number of loans endorsed to date is relatively low, the offering has only been available for a few months while systems and operational infrastructure must often be developed to utilize this option, in addition to the significant coordination required throughout the mortgage chain,” Stevens said.
Now that home values have nearly stabilized, “lenders can make more accurate calculations about the expected returns from principal reductions,” Stevens testified. He said lenders have “increasingly recognized that a principal write down can be an economically rational alternative to foreclosure to preserve value in their mortgage holdings.”
Tags: FHA, Short-Refi program, lenders, loan modification, foreclosure prevention, borrowers, refinanced loan, principal write down, mortgage holdings