The “Home Affordable” Refinance Option

As with the Making Home Affordable Loan Modification Program, the stated objective of the Refinance Program is to make it possible for people to keep their homes should their financial position be downgraded, in some cases coupled with a loss of equity in the property.

A home owner with good credit and a property that has retained its value may be able to refinance at a lower interest rate and obtain better terms from their lender providing they can show capability to handle the new payment schedule.

Borrowers with adjustable rate mortgages would hope to convert to a fixed rate mortgage and lock in a favorable interest rate.

According to a government-generated advisory, the Federal Housing Administration (FHA) is making changes to existing financing programs to allow more lenders to perform mortgage principal write-downs for underwater borrowers in mortgages not currently insured by FHA.

The changes are expected to provide opportunities for qualifying mortgage loans to be restructured and refinanced as FHA loans provided the borrower is current on their mortgage payments and the lender or investor writes down the unpaid principal balance by at least 10 percent of the original first mortgage.

A second mortgage write-down program is expected to encourage further write-downs with the provision that the total mortgage debt is no greater than 115 percent of the current value of the home.

Mortgage Masters, Inc. President Miles Kimhan, who has nearly 20 years in mortgage lending and real estate, noted that these programs are voluntary, and the lenders have to be willing to participate. “What’s important is that borrowers become proactive with regard to this or any of the new Making Home Affordable programs and contact their lender or servicing provider. As mortgage brokers, we are in a position to research the potential for refinance or modification based on both the eligibility of the client and the fact that we have a good overview and understanding of what the various lenders, both local and national, might be willing to do.

“We are certainly willing to talk to clients to discuss their particular case, but keep in mind that the new FHA refinance option is only available to responsible home owners who are current on an existing mortgage that is not insured by FHA. To be eligible, borrowers must occupy the home as the primary residence and be able to meet FHA standard documentation and other underwriting requirements. The home will have to be appraised to determine current market value, and the LTV, or loan-to-value, for the new FHA financing can be no greater than 97.75 percent of the appraisal.

“FHA has indicated that they are going to move quickly to implement this program and that lenders should be able to begin making decisions by the fall of 2010.

“Borrowers who currently have an FHA-insured loan are not eligible for “principal forgiveness,” a component of the new program, because they are already in a position to receive loss mitigation assistance to prevent foreclosure.”

According to Making Home Affordable advisories, a number of lending institutions have agreed to participate in the new programs.