Is FNMA going to follow FHA on the short refi?

Click here for more pictures by Renjith Krishnan

FHA introduced a refinance loan for homeowners who are underwater on their mortgage.  For those who owe more on their homes than their homes are currently worth, FHA’s new  program which went into affect September 7th of this year, allows a maximum of a 97.75 of the value of the home to be financed with a new FHA insured mortgage and in return the existing lender must agree to forgive at least 10% of the balance owed on the loan.  The underwriting guidelines are no different than the existing FHA guidelines and you should be current on your existing loan.  On a California real estate loan, that is quite a bit of debt to forgive.

For example if an existing homeowners home is currently valued at $300,000 and they owe $350,000 on their first mortgage, the maximum loan amount allowable on this property would be $293,250 (300,000 x 97.75%) which means the existing first mortgage would have to forgive the difference of $350,000 and $293,250.  So far, not many lenders are willing to participate in this program however as time goes on I believe they will.  Again on a California real estate loan that is quite a bit to waive in principal balance but it may make sense to do it in some cases.

The question now is Fannie Mae and Freddie Mac willing to follow FHA into this platform?  Time will tell.  The government basically is holding Fannie and Freddie in receivership by giving them the mother of all bailouts.  So with FHA being a federally backed loan, something tells me Fannie and Freddie may be working on something similar to the FHA short refi.  In a short time the California real estate loan market may get an additional energy boost and distressed underwater homeowners may be able to find some relief.  If this program does come to fruition, the banking community must embrace it and accept it otherwise it will just be another passed measure with no affect in other words like the just passed FHA short refi program………so far.

Best KW

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