Federal Housing Administration Commissioner David Stevens said 23 approved lenders signed up to participate in the Short Refi program designed to help underwater borrowers avoid foreclosure as of Feb. 11. Testifying before a House subcommittee Wednesday, a slew of government officials including Stevens defended several foreclosure prevention programs facing termination from Republicans who say the programs are too expensive and ineffective. But other than the Home Affordable Modification Program, which enters its third year this month, most of the targeted programs are still getting off the ground, including the FHA Short Refi program. The FHA launched the program Sept. 7, 2010. The Treasury Department set aside $14 billion in Troubled Asset Relief Program funding for it. Under the program, eligible borrowers can receive an FHA-insured loan if the lender or investor writes off the unpaid principal balance of the original first-lien by at least 10%. To be eligible for the new loan, the homeowner must be underwater but still current on the 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 receiving the new refinancing 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. Stevens said 245 FHA case numbers have been requested, and 44 loans have been endorsed. The average appraised values for the Short Refi requests is $285,403 with an average unpaid principal balance of $308,982 on the first lien. Participants requested an average of $77,546 to be written off, and the average loan-to-value ratio is 91.4%. The average credit score for these preliminary loans is 711. Whether the credit score is FICO or VantageScore, or an average of both, is not clarified in the program. “Although the number of loans endorsed to date is relatively low, the offering has only been available for a few months while systems and operational infrastructure must often be developed to utilize this option, in addition to the significant coordination required throughout the mortgage chain,” Stevens said. He added many decisions must be reached be a variety of players in the program. Lenders and investors select the loans to be refinanced. Borrowers agree to apply for a new loan and submit full documentation. Then lenders and investors have to agree on how much to write off, and servicers have to cooperate with everyone. Wells Fargo (WFC) and Ally Financial (GJM) recently announced they were beginning pilots into the program, selecting a few loans held on their portfolio, Stevens said. “Based on additional discussions, several more lenders are in the process of developing the capability to utilize the FHA Short Refinance option by midyear and intend to collectively assist several thousand more homeowners,” Stevens said. Write to Jon Prior. Follow him on Twitter: @JonAPrior

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