A couple of days ago, I posted about a program headed to North Carolina through the North Carolina Housing Finance Agency, to help make mortgage payments to struggling homeowners facing foreclosure. Well, the good news is that you no longer have to be out of work or have a hardship to get the government to buy down your mortgage.
Last week, FHA Commissioner David Stevens released a new HUD Mortgagee letter that introduces a new principal reduction refinance plan.
No, I’m not kidding.
So that you’ll stay in your home and stop walking away, the government is offering to refinance your underwater non-FHA loan to a FHA loan and will reduce the principal up to 10%. Therefore, if you owe $250,000 on your mortgage, you could see a $25,000 reduction in principal just for refinancing.
The catch: you must have a credit score over 500 and not have an FHA loan. If you have a second mortgage, the total of all of your mortgages cannot exceed 115% of your home’s value. Also, it has to be your principal residence and 4 units for less. That’s it. You don’t have to be late or miss payments, out of work or even have a hardship. If you have a non-FHA loan and it can be refi’d down to FHA limits (I guess those will remain), you’re eligible
Is the government writing down your principal? The answer: not really. The idea is that the FHA will insist that any participating non-fha lender write off the loss and they’ll take your loan over.
The program debut’s in September, just in time to influence the mid-term elections.
Sorry condo owners: you’re still screwed. Remember, in order to refinance your condo to an FHA loan, your condo complex must be on their FHA approved-complex list. That, in and of itself, can be a nightmare as the FHA requires documentation that some property managers and condo association leadership don’t want to divulge.
So the questions are:
Is this ethical? The government is demanding that investors write down 10% of the refinancing loan and then taking that loan away from them. If I were an investor, I would want to retain the loan since the real money is made in interest.
Is this ethical also since the market has fallen and in a frantic pace to create yet another false bottom to the housing market, the government is offering to buy down your principal. When the market was good and home prices were booming, did you ever pay more to your lender, allowing them to share in the wealth?
Finally, are you suspicious of the timing – just before the mid-term election?