Starting September 7, 2010, FHA will offer certain ‘underwater’ non-FHA borrowers who are current on their existing mortgages and whose lenders agree to write off at least ten percent of the unpaid principal balance of the first mortgage, the opportunity to qualify for a new FHA-insured mortgage.

Here is an excerpt from the article:

The enhancements are designed to maintain homeownership for borrowers who are current on their mortgage but owe more on those mortgages than the market value of the home. Like most of the measures that have been undertaken to stem the flow of foreclosures and stop the collapse of the housing market, these changes rely to a great extent on the cooperation of a homeowner’s existing lenders who must be willing to write off at least 10 percent of the outstanding balance of a senior lien or relinquish or re-subordinate a junior lien position.

Participation in the voluntary program is limited to homeowners who, In addition to a negative equity position and being current on mortgage payments, must be the owner-occupant of a 1-4 family home used as the primary residence and not currently financed with an FHA guaranteed mortgage. The borrower must qualify for the new loan under current FHA underwriting guidelines which, among other criteria, require a “FICO-based” credit score of at least 500.

The requirement that the mortgage be current does not eliminate borrowers who have cured delinquencies. A borrower who has successfully completed the trial modification period under the Making Home Affordable Modification Program (HAMP) may close on one of the new loans the month following the conversion of his loan to permanent status. In the case of a non-HAMP modification, the borrower must have made three monthly payments on time and be paid-to-date at the time the loan is made.

The new FHA mortgage can have a loan to value (LTV) ratio of no more than 97.75 percent, and if junior liens are re-subordinated to the new loan, the combined indebtedness can not constitute more than a 115 percent LTV of the refinanced loan.

The new mortgage can be used only to refinance the unpaid principal balance on the first lien plus any prepaid interest for the month the mortgage is originated, prepayment penalties, late charges, escrow shortages, closing costs, prepaid expenses, and discount points. Any charges that would put the LTV above the levels described above would have to be written off by the mortgagee.
FHA advises borrowers that their credit reports and credit scores might be damaged because of the principal forgiveness requirement and that they should also consult a financial advisor about any tax ramifications that might come from their participation in the program.

To read the full article click the link below:
http://www.mortgagenewsdaily.com/08082010_fha_underwater_mortgages.asp

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