Info Scarce on FHA Underwater Refi

Written by
Kirk Haverkamp
Read Time: 3 minutes

According to FHA Commissioner David Stevens, there are 23 lenders participating in the FHA Short Refinance Program. Finding out if your lender is one of them can be a challenge.

In fact, getting any information on the program, which is designed to enable underwater homeowners to reduce their mortgage debt and refinance their loan, can be difficult. The web site of HUD, FHA's parent agency, doesn't openly promote the program, nor does it offer any information or links to it under its foreclosure avoidance or refinancing sections.

At least some House Republicans are looking to shut down the young program, saying it's been ineffective and a waste of taxpayer money. In defending the initiative Wednesday, Commissioner Stevens told a House Financial Services subcommittee that the program is still gearing up, with operating arrangements still being developed.

No list of participating lenders available

The program is a major initiative - Congress has made available up to $8 billion to support it. But the FHA doesn't appear to be doing much to promote it, even though the program has been operational since early September.

It's difficult for borrowers to even find out if their mortgage servicer has agreed to participate in the voluntary program or not. Although Stevens told the House subcommittee that 23 have agreed to participate so far, the list is not available on HUD web site, nor any other, it seems. Borrowers must call their mortgage servicer to find out if the lender is participating in the program.

Lemar Wooley, an FHA spokesman, said the agency doesn't publish an official list of venders because they aren't officially participating until the loans they have submitted for approval are accepted. At the same time, he said the agency expects the number of participating lenders to increase.

"Many lenders are ramping up to participate," he said.

Wells Fargo, GMAC said to be on board

Two major lenders who are known to be planning to participate are Wells Fargo and Ally Financial (parent of GMAC Mortgage). Stevens said in his congressional testimony that both are preparing pilot programs focusing on a select number of borrowers, while other lenders expect to institute the program by mid-year, with the goal of assisting several thousand homeowners.

As of Feb. 11, 44 refinances had been approved under the program, with 245 applications submitted, Stevens said. As of two weeks later, the number of applications had risen to 338, according to Wooley.

Reduce principal and refinance

The program allows qualified underwater homeowners - those who owe more on their mortgage then their property is worth - to refinance out of their current mortgage into an FHA mortgage, probably at a lower rate. More importantly, it requires that the investors holding the mortgage agree to write down the excess principal on the loan to 97.75 percent of the property's current value, with the investors and federal government sharing the cost.

The deal allows the investors to get out of the mortgage while recouping more than they would likely get if the mortgage were to go into foreclosure, while the homeowner gets to reduce what he or she owes, and likely refinance at a lower interest rate as well. However, the agreements involved - among possibly several investors, the mortgage servicer, the borrower and the government - make it a complex deal to put together.

To qualify, homeowners must be current on the existing mortgage, which cannot be an FHA loan itself.

Presently, the only way to find information about the program on the HUD web site is by doing a search for the program title, "FHA Short Refinance" or related terms. The government's Making Home Affordable Program (, which primarily deals with Fannie Mae and Freddie Mac-guaranteed loans, does offer a page of information under its refinance section, titled "Lower Your Rates."

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