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FHA program a Foreclosure Refinance? Think again...

Loan modification bait and switch

Foreclosure refinances schemes are yet another bait and switch measure. Are you ready to be done with your current lender. A short sale may be your best solution. Call Andy Morris of Realty Trust Services to see if a short sale might work for you. 216-324-6637

The following is a re blog of a post by Bob Hertzog called FHA Refinance Program Announced!  Wait, Don’t Get Too Excited….  I along with a lot of other short sale and foreclosure blogger have gotten little bit more than impatient with the programs that promise plenty but deliver little for folks in need.

I have talked to many loan officers and asked them about the FHA foreclosure refinance programs that were supposedly out there.  The feedback I have always gotten is yea they have those but they designed to never happen.

Of course you should check with your lender to see if they support this program.  However standards for underwriting the refinance will absolutely keep the people who need it most from getting it.

In yet another futile attempt to show homeowners how much FHA and the current administration cares about actually turning around the real estate market, HUD announced yet another program that they claim will help 3-4 million homeowners stay in their homes.  The program will be an “enhancement” to the Making Home Affordable Program, so they say.  It’s intent is for lenders who own non-FHA loans to reduce the principal balance by at least 10%.

Please read the FHA Refinance Of Borrowers In Negative Equity Positions letter that was just released August 6th by HUD, explaining the program.  After reading it, I’m sure you will also feel that this is yet another announcement to prop up the current administration (Lord knows they need all of the positive publicity they can get right now).

As with every other homeowner-related program the current administration has tried thus far, this “enhancement” is once again “all hat/no cowboy”.

First and foremost, the program only pertains to those borrowers who have a “non-FHA” loan.  No problem, right?  Sounds great, until you read deeper into the announcement, and see that once again, lenders have a choice as to whether they participate in the program.  Sound familiar?

In order to qualify, borrowers must convince their lender to write down the principal balance by at least 10%.  In exchange for doing so, the lender receives a whopping $500 incentive.  Yeehaw!  I bet lenders are just dying to jump in and sign up for this lucrative program!

In addition, the new FHA refinanced loan cannot have a loan/value of more than 97.75%.  How generous!  I don’t know about you, but most homeowners I deal with on a daily basis have a loan/value ratio of under 50%.  Do you see where this is going?

So, let me get this straight…Borrower owes $200,000 on a house that is worth $100,000.  Borrower asks his lender to reduce his principal balance by over $100,000, and the lender gets a $500 “incentive”?  Sorry, but I’m not buying it.

Like the recently announced HAFA program, this announcement will be shrugged off as yet another waste of time.

Americans need to wake up and realize that bank bailouts and FDIC loss share agreements are more important to this administration than actually helping homeowners!

Look, I feel that the government has already done enough to keep us from recovering in our respective real estate markets. This announcement is yet another attempt to boost the ratings of the current administration, and, once again, falls flat on it’s face.

For those agents in non-recourse states (like AZ, which has an anti deficiency statute in place), make sure that you advise your clients that this refinance could put them in a recourse situation.  I know, all of you have already started dialing up your sphere of influence, discussing the benefits of this wonderful new “enhancement”. :)


Andy Morris is an Ohio real estate broker with an expertise in selling homes on a short sale. If your Ohio home is heading towards foreclosure or you owe more than your property is worth, please call Andy at 888-4-STOP-IT to see if you qualify for a short sale with your lender. Are you not in the North Eastern Ohio area? His team can negotiate short sales across the United States.

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