Monday, November 22, 2010

FHA Refinance for Borrowers in Negative Equity Positions (NEP)

Homeowner’s who are in a negative equity position (owe more than the value of their home)
have a program designed to help them if they meet the guidelines set by Department of Housing and Urban Development (HUD). This new program is an enhancement to the existing Making Home Affordable Program (MHA) and is a FHA refinance program that will give a greater number of homeowners the opportunity to stay in their homes. The homeowner would have to qualify for the new FHA loan and their current lender or investor would have to write off 10% of the existing first lien mortgage. Eligibility of this NEP –FHA loan is voluntary and requires the consent of lien holders. The home owner eligibility is as follows.
1. The homeowner must be in a negative equity position;
2. The homeowner must be current on the existing mortgage to be refinanced;
3. The homeowner must occupy the subject property (1-4 units) as their primary residence;
4. The homeowner must qualify for the new loan under standard FHA underwriting
     requirements and possess a “FICO based” decision credit score greater than or equal to 500;
5. The existing loan to be refinanced must not be a FHA-insured loan;
6. The existing first lien holder must write off at least 10 percent of the unpaid principal balance;
7. The refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than
     97.75 percent;
8.  Non-extinguished existing subordinate mortgages must be re-subordinated and the new loan
      may not have a combined loan-to-value ratio greater than 115 percent;
 9.  For loans that receive a “refer” risk classification from TOTAL Mortgage Scorecard
     (TOTAL) and/or are manually underwritten, the homeowner’s total monthly mortgage
      payment, including the first and any subordinate mortgage(s), cannot be greater than 31
      percent of gross monthly income and total debt, including all recurring debts, cannot be
      greater than 50 percent of gross monthly income;
10. FHA mortgagees are not permitted to use premium pricing to pay off existing debt
      obligations to qualify the borrower for the new loan;
11. FHA mortgagees are not permitted to make mortgage payments on behalf of the borrower
      or otherwise bring the existing loan current to make it eligible for FHA insurance; and
12. The existing loan to be refinanced may not have been brought current by the existing first
      Lien holder, except through an acceptable permanent loan modification as described below.

The Mortgagee must ensure the existing first lien holder writes off at least 10% of unpaid principal on their current loan. The short payoff serves as payment in full and a full conveyance for the debt is completed. The new FHA loan can be no more than 97.75% of the unpaid principal balance of the first lien and any existing subordinate mortgages must be re-subordinated and not have a combined loan to value of more than 115%.

More information is available on the HUD website at; www.hud.gov
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