On August 6, 2010 The Federal Housing Administration (FHA) announced it will be rolling out a new program on September 7, 2010 that will offer new FHA insured mortgages to underwater homeowners who are current on their mortgages provided the homeowner’s lender will agree to write off at least 10% of the unpaid mortgage balance. 

Sound too good to be true?  Well there is a catch.  The homeowner must get their lender (servicer) and the investor who owns the mortgage to take a short payoff of the loan.  Many lenders and investors are reluctent to do this.  So although the program looks great to homeowners it may be easier said than done.

Who qualifies?

  1. Homeowner must be in a negative equity position (underwater).
  2. Must be current on the existing mortgage.
  3. Homeowner must occupy the property.
  4. Homeowner must qualify for new FHA loan and have a minimum FICO score of 500.
  5. The existing loan cannot be an FHA loan. 
  6. The existing lien holder (lender) must agree to write down at least 10% of the unpaid balance.
  7. The new re-financed FHA first mortgage cannot have a loan-to-value greater than 97.75%.
  8. If there is a second lien it can be re-subordinated to the new loan, but the 2 loans combined cannot be great than 115% loan to value.

Interested homeowners should contact their servicer for more information.  When I looked on Bank of America’s website, my servicer, I found mention of the program but that they had not worked out the details and to keep checking back.  With the program scheduled to roll out in early September, you may find this to be the case with many lenders.

If you would like a copy of the FHA Mortgagee Letter that details the program, please feel free to contact me.