Starting Sept. 7, the Federal Housing Administration (FHA) will offer certain non-FHA borrowers the opportunity to qualify for a new FHA-insured mortgage. Borrowers will need to be current on their existing mortgage, and their lenders must agree to write off at least 10% of the unpaid principal balance of the first mortgage.
FHA published a mortgagee letter to provide guidance to lenders on how to implement this new enhancement. Participation in FHA's refinance program is voluntary and requires the consent of all lien holders. The homeowner must qualify for the new loan under standard FHA underwriting requirements and have a credit score equal to or greater than 500. The property must be the homeowner's primary residence, and the borrower's existing first-lien holder must agree to write off at least 10% of the unpaid principal balance, bringing that borrower's combined loan-to-value ratio to no greater than 115%.
‘We're throwing a life line out to those families who are current on their mortgage and are experiencing financial hardships because property values in their community have declined,’ says FHA Commissioner David H. Stevens. ‘This is another tool to help overcome the negative-equity problem facing many responsible homeowners who are looking to refinance into a safer, more secure mortgage product.’
SOURCE: Federal Housing Administration