The FHA recently announced the details of its new short refinance program. The idea of being able to obtain a short refinance has many borrowers excited about the prospects of having tens or even hundreds of thousands of dollars of debt wiped away. The problem is that lenders are normally not at all excited in losing tens or hundreds of thousands of dollars and the new program requires the full cooperation and approval of those lenders.
Lenders question: What’s in it for us?
Mortgage lenders/banks are for-profit institutions so they will always ask “what’s in it for us?” when a borrower seeks a loan modification or short refinance. In the case of the new FHA short refinance program we fail to see the benefit to lenders for participating. Normally the only time a lender would seriously consider participating in a principal write-down is if the only choices left to them were to foreclose on a property or to grant a short refinance. That is because foreclosing usually is more expensive for the lender than the principal write-down would be. But based on the requirements of the new FHA program lenders will never be faced with those two options. That is because once a borrower falls behind on mortgage payments that borrower is no longer qualified for the FHA short refinance program to begin with. In other words, there is virtually nothing to gain for a current lender to agree to write down principal on mortgage because the people asking for them to employ the new FHA short refi program are not considered foreclosure risks to begin with.
The one thing that the new program does do is clear away some of the regulatory snags regarding getting an FHA loan. But based on what we can see so far, the fundamental idea behind the plan is deeply flawed and thus we don’t expect to see very many lenders granting these kinds of principal write downs at all.
Don’t give up
While we are skeptical of this new program there are several other programs in place that have a proven track record. Please contact us in the sidebar today to learn more about the available programs that could assist your family.