Julie Shaffer, Program Manager, FHA’s Short Refinance Option, HUD’s Office of Housing
For the last year, I have been working to help implement FHA’s Short Refinance Option. The program gives borrowers who are current on their loans but owe more on their home than it is worth due to falling house prices an opportunity to refinance into an FHA insured mortgage at 97.75% of the home’s value. The goal is to help struggling homeowners sustain long term homeownership. It is estimated that 25 percent of all homeowners with mortgages are currently underwater, so this program is critical to helping some of these homeowners regain stable ground.
Recently, I spoke with Beverly Matteson. She and her husband had fallen on some bad times and were trying to lower their monthly mortgage payments but couldn’t since they were underwater. Her husband was unemployed, had no health insurance and had suffered a heart attack. In addition to all their outstanding medical bills, they had $400 in monthly expenses for his medication. They were struggling to keep up on only one income. Luckily, they were able to take advantage of FHA’s Short Refinance Option. Their lender agreed to write off $56,500 of principal on their existing loan. With this principal write-down, which was borne completely by the lender at no costs to the taxpayer, the Mattesons were able to lower their monthly mortgage payment from $1,977 to $1,244 a month.
I also spoke with the Wymans, who had an adjustable rate mortgage and their property had dropped significantly in value. When their interest rate adjusted, their monthly mortgage payment increased $1,800 a month. The Wymans were having difficulty staying current on their mortgage and had trouble refinancing since they were underwater. Mr. Wyman’s mother and two brothers moved into his home to assist with the expenses. Fortunately, they were able to take advantage of FHA’s Short Refinance Option. The lender agreed to write off $68,129 of principal on their existing loan, also at no cost to the taxpayer. Their payment dropped $1,000 a month. The Wymans are relieved to have a fixed rate affordable mortgage that is government insured.
That is why the Obama Administration has opposed this effort in Congress to eliminate this program so vigorously, to help keep homeowners like the Mattesons and Wymans in their homes. If the House of Representatives bill to eliminate this program should move forward, we lose the opportunity to continue helping others like the Mattesons and Wymans. For them, this program was a life saver that helped keep them afloat through difficult times. They told me that it is their hope that other borrowers, in similar tough circumstances, would be able to take advantage of this program because the FHA Short Refinance Option helped to prevent them from going into foreclosure and it is certain to help others.