FHA and the Short Refi left behind
The $8 billion Federal Housing Administration Short Refi program, launched last September to refinance underwater mortgages, helped 301 borrowers in 11 months, according to Department of Housing and Urban Development data analyzed by HousingWire. The program was initially expected to reach between 500,000 and 1.5 million borrowers. As of Aug. 31, 27 lenders are participating in the program. Fannie Mae and Freddie Mac are not, leaving out roughly two-thirds of the potentially eligible loans, and HUD has been unsuccessful in urging servicers to provide the relief to the other one-third. The 301 borrowers helped so far is up from 246 in April as HousingWire reported. A HUD spokesman said in July roughly $50 million has been spent through the program. Eligible Short Refi borrowers can receive an FHA-insured loan if the lender or investor writes down the unpaid principal balance of the original first-lien by at least 10%. The homeowner must be underwater but still current on the existing 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%. After being refinanced through the program, the borrower's combined loan-to-value ratio on the re-subordinated mortgages cannot exceed 115%. The new FHA mortgage can only be used to refinance the unpaid principal balance on the first lien. Nationstar leads all other servicers in the program by far, refinancing 108 loans through August. The next closest is 1st Alliance Lending with 27. Eight other lenders have done more than 10, and 13 have done only one through their test programs. Of the largest banks, only Ally Financial's (GJM) GMAC Mortgage with 14 and Wells Fargo (WFC) at 25 participate in the program to any degree. In the second quarter, nearly 11 million properties were worth less than the underlying mortgage, according to CoreLogic (CLGX). While Freddie Mac recently pointed out the current refinancing boom, underwater borrowers are finding themselves left out. Only 7.4% of the more than 838,000 Home Affordable Refinance Program borrowers, had LTVs between 105% and 125%, according Federal Housing Finance Agency data. The Obama administration announced plans to eliminate upfront fees and LTV requirements on Fannie and Freddie loans to help these borrowers refinance down to a more manageable rate. The FHFA is considering changes to the HARP in response, meaning the FHA Short Refi could be left behind. Write to Jon Prior. Follow him on Twitter @JonAPrior.