Underwater Borrowers and FHA Refinancing Loans

The FHA offers a limited-time program designed to help recent home loan borrowers in negative equity positions, a situation commonly called being underwater on a home loan. Being “underwater” refers to owing more on a home than it is currently worth on the open market, or having purchased a home that was worth far more at purchase time than current property values currently reflect.

General information on the Refinance of Borrowers in Negative Equity Positions Program on the FHA/HUD website describes the program as a way to give “responsible borrowers an opportunity to remain in their homes” as part of the Making Home Affordable (MHA) Program.

According to FHA loan rules currently in effect, “a borrower who is current on his/her mortgage may qualify for an FHA refinance loan provided that the lender or investor writes off at least 10% of the unpaid principal balance of the original first lien mortgage.”

Lender Participation Is Key

That lender participation is one of the most important parts of this program—the borrower may be current on the home loan, and meet all other qualifications of the program, but if the lender does not agree to the 10% write-down on the unpaid principal, this particular type of FHA refinancing loan will not be approved.

FHA loan programs are voluntary. Participating lenders are obliged to follow FHA loan rules, fair housing laws and applicable state statutes, but the government cannot force a bank to issue loans that don’t do all the above and conform to the policies of the bank. For borrowers who do have a lender willing to participate in the FHA Refinance of Borrowers in Negative Equity Positions Program, it’s important to act soon as there is a limited opportunity to take advantage of this program.


A Limited Time Offer From The Government


The Refinance of Borrowers in Negative Equity Positions Program is, according to the FHA and HUD, “effective for loans with case numbers issued on or after September 7, 2010 that are closed on or before December 31, 2012.”

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