FHA Backed Refinances Increase Expected Thanks To New Bill

By admin • June 30th, 2008

We put our national network of FHA Approved Appraisers on stand by since Congress is expected to pass legislation in the coming days that could help hundreds of thousands of homeowners refinance into mortgages backed by FHA.

Of course there is a catch…the lenders must be willing to forgive a portion of the principle balance.  “This is the most significant piece of housing legislation in a generation,” says Francis Creighton, vice president of legislative affairs at the Mortgage Bankers Association. “It gives people the ability to get out of trouble.”

Under the bill’s terms, most homeowners with a fixed – or adjustable rate mortgage whose house has not been foreclosed on could apply for FHA refinancing. The lender would have to agree to reduce the principal of the loan to roughly 85% of the property’s current appraised value. Lenders might be motivated to do that because often they lose even more money when they foreclose on a property, Mr. Creighton says.   So lets do some numbers on this:  Let’s say you owe $390,000 and your homes appraised value is $400,000.  That means your new loan would be for $340,000 plus closing costs if the lender agreed to reduce the principle by 15%!  That’s a pretty sweet deal for homeowners! 

We also read somewhere that FHA is considering increasing their minimum loan limits. With all this positive information flying around we are hopeful to see the industry make a comeback and the home mortgage loan crisis to be finally over!

Comments

Great article. The government will need to step in to do more to shore up this housing market, but is asking lenders across the board to reduce the amount owed by 15% fair? The homeowner is in essence getting free money. I am all for helping borrowers with adjustable rate mortgages that are increasing, but asking lenders to bear the greatest burden seems unfair.
I would love to see FHA allow over 100% LTV refis. This will allow borrowers to lock in the amount they already owe into a 30 year fixed while at the same time not randomly waiving money that was borrowed.
Regardless, FHA loans are a growing percentage of my loan portfolio and looser guidelines and more aggressive programs will only continue to help the housing market.

 

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