When the FHA Short Refinance program was announced, underwater homeowners were hopeful about being able to refinance to current mortgage rates and get their mortgage balances cut to no more than 96.5 percent of their home's current value. In practice, that hasn't worked out so well.
The FHA Short Refinance program seemed like a dream since it would get borrowers in the black again, and didn't require you to have a hardship other than your home's declining value. It was designed to reward those who had done the right thing and continued to pay their mortgages as agreed. The only problem is that the government didn't provide the lenders with sound reasons to participate in the program.
Which lenders are participating in the FHA Short Refi program?
Homeowners looking for a list of participants (similar to the one put out by the HAMP program) have been disappointed. Borrowers looking for guidance from their lenders have also met with little help or information. Even Fannie Mae and Freddie Mac, organizations that are for all practical purposes owned by the federal government, have not been persuaded to participate (perhaps Congress should stop their allowances?).
So, while the government estimated that the FHA Short Refi program would be able to help about 1.1 million homeowners, so far according to HUD's Single Family Outlook for October and September, a grand total of 39 homeowners have applied for this refinance and so far none have funded.
You want us to what?
Why would mortgage lenders be so averse to participating in the program? Probably because they would be taking loans that are performing very well (remember, these homeowners are paying their mortgages on time and also paying a high-than-market interest rate), and exchange them for fat losses by requiring the write-off of some of the mortgage principal.
As a result, the real question here is why would a lender ever voluntarily agree to such a thing?
Unfortunately, for underwater mortgage borrowers without qualifying hardships, their best chance of getting current mortgage rates is still a HARP refinance (for those with Fannie Mae or Freddie Mac loans) that does not include a principal reduction. For HARP refinance rates, complete the inquiry form on Shoprate.com