Little interest in FHA Short Refinance program
by Tim Manni
“All I want is the opportunity to refinance.” That’s the overwhelming message we’re hearing from underwater borrowers.
Until now, negative equity has denied underwater borrowers the opportunity to refinance. On August 6, the FHA announced a program — the FHA Short Refinance option — that’s designed to help these borrowers refinance. However, many critics (including us) feel as though the FHA’s strategy will cause the program to fall well short of the lofty goals it set out.
Why? The main reason is due to the fact that lenders are required to reduce a borrower’s principal by at least 10% right off the bat.
Apparently the fear of another failed housing preservation program has reached the White House. Reports earlier this month suggested that officials were going to meet today to discuss the FHA’s Short Refinance plan so they can avoid the same trappings that have crippled the effectiveness of other similar programs, such as HAMP and HARP.
According to an article this week in the Reno Gazette-Journal, most of the country’s largest mortgage lenders haven’t yet shown much of an interest in the FHA’s plan:
Among the area’s major servicers, Wells Fargo and CitiMortgage said they still are navigating the new program and have yet to decide whether they will participate.
JP Morgan Chase said it will not be participating in programs that fall outside of the Treasury Department’s Home Affordable Modification Program, HAMP.
Bank of America could not be reached for comment, despite repeated attempts.
In addition to the lack of interest being shown by lenders, some experts are saying that some borrowers are a) showing very little interest at the moment; and b) flat out won’t qualify:
The government is estimating anywhere from 500,000 to 1.5 million homeowners could be helped by the new program. Analysts at Barclays Capital estimated last month that the refinancing program would only aid between 200,000 and 300,000 homeowners.
It stands to reason that this information has reached those in Washington and that’s likely why officials are planning to meet to discuss if this program is really the optimal solution to help the nation’s overwhelming number of underwater borrowers.
HSH has devised our own plan to help underwater borrowers. Unlike the FHA’s program, it doesn’t penalize lenders, and any cost that accrues to the government may lessen over time. Our plan is designed for homeowners like Sara Timmons who want to stay in their home for the long haul, and merely want the opportunity to take advantage of this low-rate environment:
“We don’t want to move out of our home,” [Timmons] said. “We bought a home to live in, not to invest in. But it’s hard to enjoy that when you’re always stressing about the money you’re putting into it.”
“I’m not trying to get something for nothing,” she said. “We just want something to give us a little bit of relief right now so we don’t feel like we’re struggling all the time … refinancing would be amazing.”
It’s likely going to be a while before we have another update on how the FHA Short Refinance plan is fairing. Hopefully, we’ll have an update for you sooner if officials meet today to discuss any change in the strategy for helping the nation’s underwater borrowers.
