Help on 'under water' mortgages
Six months after announcing more help for borrowers with no equity in their homes, the federal government started this week to begin converting "under water" mortgages into ones insured by the Federal Housing Administration.
Under the FHA Short Refinance program, borrowers who are current and have a 500-plus credit score can see if their primary lenders will write off at least 10 percent of the unpaid balance on the primary loan. The amount of debt on the refinanced primary mortgage after refinancing cannot be more than 97.75 percent of the value of the house, known as loan to value ratio. If there are two loans, the combined debt cannot be more than 115 percent.
In Nassau county, about 12.1 percent of borrowers in single-family homes had no equity during the second quarter of this year, while in Suffolk, it was 12.6 percent, according to the latest data from Zillow, an online real estate market. Nationwide, about 21.5 percent had no equity, Zillow said.
In the federal program, lenders who agree to write off at least 10 percent can have the remaining balance rolled into a new loan insured by the FHA, which now insures many loans for people who can't put 20 percent down. While the lenders will lose some money, the refinance is expected to cut chances of the borrowers defaulting, which is more likely when they owe more than their homes are worth. Lenders have virtually no risks, because FHA loans are almost always taken off the lenders' books and bundled up to be sold as mortgage-backed securities.
The borrower's existing loan cannot be an FHA loan currently.
Junior lenders, if there are second loans, would also have to agree to the primary loan's refinance. Further, junior lenders can get at least $500 if they agree to writing off all or part of their loans. It's $500 at the closing and additional payments depend on how much mortgage debt is on the house compared to its value.
The U.S. Department of Housing and Urban Development estimated 500,000 to 1.5 million borrowers will get refinancing under this program, with $11.8 billion to $35.3 billion in projected savings for borrowers.
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